Maker-O-Dough, Inc. needs to make more money. The firm wants a 10% rate of return on all
Question:
Maker-O-Dough, Inc. needs to make more money. The firm wants a 10% rate of return on all capital projects and evaluates them on a pre-tax basis.
Project A requires a $450,000 investment. It has an expected life of six years with an annual cash flow of $90,000 received at the end of each year.
a. Payback period for the project =
b. Net present value (NPV) of the project =
c. Estimated internal rate of return (IRR) for this project =
d. Should Maker-O-Dough accept or reject this project?
e. Explain:
Project B also requires a $450,000 investment, but it has an expected life of 3 years and has the following estimated future cash flows:
Year 1 | $175,000 |
Year 2 | 250,000 |
Year 3 | 150,000 |
Salvage value | -0- |
f. Payback period for the project =
g. Net present value (NPV) of the project =
h. Estimated internal rate of return (IRR) for this project =
i. Should Maker-O-Dough accept or reject this project?
j. Explain: