# 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

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:

- Expert Answer

## Question Project B F G NPV H Boject A a Pay Back Pe View the full answer

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Internal rate of return is a method of calculating an investment’s rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk.