PJ corporation is considering entering the dog food business. To produce dog food the company would need
Question:
PJ corporation is considering entering the dog food business. To produce dog food the company would need to purchase an oven at $200,000 today (CF0). The oven is projected to last 5 years. PJ’s projected net cash flows for the next 5 years are in the following table. The cost of capital for PJ is 14%.
Year Net Cash Flow
0 -200,000
1 20,000
2 50,000
3 100,000
4 150,000
5 175,000
What is the payback period on this investment? Express your answer in years.
PJ corporation is considering entering the dog food business. To produce dog food the company would need to purchase an oven at $200,000 today (CF0). The oven is projected to last 5 years. PJ’s projected net cash flows for the next 5 years are in the following table. The cost of capital for PJ is 14%.
Year Net Cash Flow
0 -200,000
1 20,000
2 50,000
3 100,000
4 150,000
5 175,000
What is the IRR? Express your answer as a percentage with 2 decimals. Do not include the % symbol.
PJ corporation is considering entering the dog food business. To produce dog food the company would need to purchase an oven at $200,000 today (CF0). The oven is projected to last 5 years. PJ’s projected net cash flows for the next 5 years are in the following table. The cost of capital for PJ is 14%.
Year Net Cash Flow
0 -200,000
1 20,000
2 50,000
3 100,000
4 150,000
5 175,000
What is the NPV? Express your answer in dollars and cents. Do not include the $ sign.
PJ corporation is considering entering the dog food business. To produce dog food the company would need to purchase an oven at $200,000 today (CF0). The oven is projected to last 5 years. PJ’s projected net cash flows for the next 5 years are in the following table. The cost of capital for PJ is 14%.
Year Net Cash Flow
0 -200,000
1 20,000
2 50,000
3 100,000
4 150,000
5 175,000
Should PJ enter the dog food business?
Yes, the NPV > 0 | |
Yes, the cost of capital is greater than the IRR |
No, the IRR is greater than the cost of capital | |
No, the NPV < 0 |
Managerial Economics
ISBN: 978-0133020267
7th edition
Authors: Paul Keat, Philip K Young, Steve Erfle