Johnson Johnson is evaluating a project that requires an initial investment of $500,000 The asset will be depreciated over five years at 20 per year The cash flows from the project are as follows Year Inflow ($) Outflow ($) Year 1 160,000 60,000 Year 2 170,000 65,000 Year 3 180,000 70,000 Year 4 190,000 75,000 Year 5 200,000 80,000 a What is the payback period b Calculate the accounting rate of return (ARR) each year and the average c Assuming a cost of capital of 10 , what is the net present value (NPV) of the cash flows d Should Johnson Johnson proceed with the project

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Question: Johnson & Johnson is evaluating a project that requires an initial investment of $500,000. The asset will be depreciated over five years at 20% per

Johnson & Johnson is evaluating a project that requires an initial investment of $500,000. The asset will be depreciated over five years at 20% per year. The cash flows from the project are as follows:

Year	Inflow ($)	Outflow ($)
Year 1	160,000	60,000
Year 2	170,000	65,000
Year 3	180,000	70,000
Year 4	190,000	75,000
Year 5	200,000	80,000

a. What is the payback period?
b. Calculate the accounting rate of return (ARR) each year and the average.
c. Assuming a cost of capital of 10%, what is the net present value (NPV) of the cash flows?
d. Should Johnson & Johnson proceed with the project?

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