Question

Please answer only e1, e2, e3 and e4

a. Project A costs $7,000 and will generate annual after-tax net cash inflows of $2,850 for 5 years. What is the payback period for this investment under the assumption that the cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.)

b. Project B costs $7,000 and will generate after-tax cash inflows of $950 in year 1, $1,850 in year 2, $2,900 in year 3, $2,850 in year 4, and $2,900 in year 5. What is the payback period (in years) for this investment assuming that the cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.)

c. Project C costs $7,000 and will generate net cash inflows of $3,250 before taxes for 5 years. The firm uses straight-line depreciation with no salvage value and is subject to a 30% tax rate. What is the payback period under the assumption that all cash inflows occur evenly throughout the year? (Round your answer to 2 decimal places.)

d. Project D costs $7,000 and will generate sales of $4,700 each year for 5 years. The cash expenditures will be $1,850 per year. The firm uses straight-line depreciation with an estimated salvage value of $400 and has a tax rate of 30%.

(1) What is the accounting (book) rate of return based on the original investment? (Round your answer to 2 decimal places.)

(2) What is the book rate of return based on the average book value? (Round your answer to 2 decimal places.)

Use the built-in NPV function in Excel to calculate the amounts for projects a through d. (Round your answers to the nearest whole dollar amount.)

e1. What is the NPV of project A? Assume that the firm requires a minimum after-tax return of 6% on investment.

e2. What is the NPV of project B? Assume that the firm requires a minimum after-tax return of 6% on investment.

e3. What is the NPV of project C? Assume that the firm requires a minimum after-tax return of 6% on investment.

e4. What is the NPV of project D? Assume that the firm requires a minimum after-tax return of 6% on investment.

Answer 1

NPV is the ultimate deciding element for a project to choose.

Its in magnitude of cash flows whereas others are in rate or in terms of period.

Since you have asked to solve only E1. E2. E3. E4.

Only those are answered.

Please comment for any queries... Thank you

Npr of project Initial Outflone = $7,000 Annual Cash inflowe = $ 2,850 p. a · 5yrs. 3 64 NPV = Present Value of Present value of Casha inflows Cash Outflowes (P.N.A.F x 2850) - 7000 (64,54m)^^ Rate + $5,005 (approx) = (4.2123*7,850) - 7,000 1NPV = 5,005) Outplone = e $7,000 Inflows & Present Value's year mah Cask inflows Pvca. F@ 64 | 950 0.943 1850 0.89 2909 0.84 2850 0.792 2900 0.747 Total Present Value 7 Outflowe Net present Value Present value $ 895.85 1646.5 2436 2257.2 21663 $ 9401.85 (7000) $2,402 (Rounded,

LRVAF (67, 5Ym) x 2695 Outflow = $7000 Lije - 5yrs Depreciation p.a 7.000-o Under straight line - 5 = 1400 pa Cash inflows pia = $3,250 less! Depreciation pa (1400) 1850 less: Tax @ 30%. (555) 1295 Add: Depreciation 1400 Cash flove after Tas $2,695 p.a Present Value of CFAT = 11,352 (7000) les: Present Value of Outflowe $ 4352 - Not present Value len Cost = 7,000 Depreciation . a = 7,000 - 400 = $1320p, a Annual sales = 4,700 les: Cash Expenditure (1850) Cash inflow p.a 2850 (1324) less. Depreciation 1530 der: Tax @ 30% (459) 1071 Add: Depreciation 1320 Cash Flowe After Tas $2391 p.a present Value of CEAT (2391 x 4.2122) $10,071 ten: Rv. of Outflone (7,000) N.P.V $3071 (67,5 you) tessi sv. of Onthlone