A project will produce sales revenue of $100,000 per year for four years starting t=1. The...

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A project will produce sales revenue of $100,000 per year for four years starting t=1. The operating expenses total $50,000 per year. To support the project, net working capital of $10,000 is needed immediately at t=0 and will be recovered in full at t=4. No additional net working capital is needed at t=1, 2, 3 and 4. The project requires an initial investment of $80,000 for the purchase of equipment, and this will be depreciated straight-line to zero over the project's life. The equipment has a salvage value of $20,000 at the end. The required return is 15% and the tax rate is 20%. a. b. C. d. What is the initial cash flow? What is the cash flow in years 1, 2 and 3? What is the cash flow in year 4? What are the payback, discounted payback, NPV, IRR and PI? A project will produce sales revenue of $100,000 per year for four years starting t=1. The operating expenses total $50,000 per year. To support the project, net working capital of $10,000 is needed immediately at t=0 and will be recovered in full at t=4. No additional net working capital is needed at t=1, 2, 3 and 4. The project requires an initial investment of $80,000 for the purchase of equipment, and this will be depreciated straight-line to zero over the project's life. The equipment has a salvage value of $20,000 at the end. The required return is 15% and the tax rate is 20%. a. b. C. d. What is the initial cash flow? What is the cash flow in years 1, 2 and 3? What is the cash flow in year 4? What are the payback, discounted payback, NPV, IRR and PI?

Answer rating: 100% (QA)

PAY BACK PERIOD IS THE TIME IN YEARS TO RECOVER THE INTIAL INVESTMENT THROUGH CASH INFLOWS PAY BACK ... View the full answer