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Homework Answers
a)
| No. | Transaction | Time Period | Cash Inflow (Outflow) | Value Factor | PV |
| 1 | Working capital investment | 0 | -400000 | 1 | -400000 |
| 2 | Initial investment | 0 | -924000 | 1 | -924000 |
| 3 | Cash flows in | 1 to 8 | 600000 | 4.487 | 2692200 |
| 4 | Cash flows out | 1 to 8 | -240000 | 4.487 | -1076880 |
| 5 | Salvage value | 8 | 138000 | 0.327 | 45126 |
| 6 | Working capital recovery | 8 | 400000 | 0.327 | 130800 |
| 7 | NPV | 467246 |
b)
| Payback period = Initial investment/Net cash inflow = $924000/$360000 = 2.57 years |
c)
| As NPV of project is postive and payback period is also favorable, therefore project will be recommended for investment. |
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