Question: Consider a project that costs $20,000 and returns $9,500 annually for the next three years. The opportunity cost of capital is 15 percent. [13 marks]
Consider a project that costs $20,000 and returns $9,500 annually for the next three years. The opportunity cost of capital is 15 percent. [13 marks]
a) Calculate the payback period for this project. If the cutoff period is two years for the payback rule, should you accept this project? Explain.
b) Calculate the discounted payback period. If the cutoff period is 2.5 years for the discounted payback rule, should you accept this project? Explain.
c) Calculate the net present value. Should you accept this project by the NPV rule? Explain.
d) Calculate the profitability index. Should you accept this project by the PI rule? Explain.
e) Calculate the net present value using 20.037 percent as the discount rate. From this calculation, can you infer the internal rate of return for this project? Should you accept this project based on the IRR rule? Explain.
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