Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively.
Time: 0 1 2 3 4 5 Cash flow: –$235,000 $65,800 $84,000 $141,000 $122,000 $81,200
Use the PI decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)
NPV of Project = PV of Cash Flows - Investment =
65800/(1+11%)+84000/(1+11%)^2+141000/(1+11%)^3+122000/(1+11%)^4+81200/(1+11%)^5-235000
= 124106.98
PI index = (NPV+Investment)/Investment = 1+ 124106.98/235000 =
1.53
SInce PI is greater than 1 Project should be accepted.
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Suppose your firm is considering investing in a project with the cash flows shown below, that...
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow: –$235,000 $65,800 $84,000 $141,000 $122,000 $81,200 Use the NPV decision rule to evaluate this project. (Do not round intermediate calculations and round...
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11%, and that the maximum allowable payback and discounted payback statistics for your company are 3 and 3.5 years, respectively. Time 0 1 2 3 4 5 Cash flow -$235,000 $65,800 $84,000 $141,000 $122,000 $81,200 Use the NPV decision rule to evaluate this project; should it be accepted or rejected? Use Excel...
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