ZuoTi.Pro
Question

A four-year project requires an initial investment of $208,000 for fixed assets and $19,500 for net...

A four-year project requires an initial investment of $208,000 for fixed assets and $19,500 for net working capital. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $76,200 and the discount rate is 6.00 percent.

I. Create a timeline/chart to identify the relevant Cash Flows and their timing

II. Use the Cash Flows for the following analysis:


a) What is the Payback Period? b) What is the NPV? c) What is the IRR? d) What is the Profitability Index? e) Should the company do this project? Why or Why not?

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1
Year 0 1 2 3 4
Cash flow -2,27,500 76,200 76,200 76,200 76,200
Cumulative cash flow formula =76200 =76200+76200 =76200+76200+76200 =76200+76200+76200+76200
Cumulative cash flow 76,200 1,52,400 2,28,600 3,04,800
As cumulative cash flow exceeds the initial investment and working capital in year 3
Payback period = 3 years
NPV $                            36,541.05
IRR 12.82%
Profitability Index 1.16
Company should do this project as it has positive NPV and IRR higher than the discount rate

0 0
Add a comment
Know the answer?
Add Answer to:
A four-year project requires an initial investment of $208,000 for fixed assets and $19,500 for net...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • The initial outlay for a project (cost) is $480,670 for a seven-year project. If the future...

    The initial outlay for a project (cost) is $480,670 for a seven-year project. If the future net cash flows from Assets are respectively for years 1 through seven: $100,000; $120,000; $59,000; $58,000; $102,000; $280,000; and $45,000. If the required return is 6.3%, A) What is the NPV of the project? B) What is the payback period without discounting cash flows? C) What is the profitability index? D) What is the IRR? D)

  • There are four principal decision models for evaluating and selecting investment projects . Net present value...

    There are four principal decision models for evaluating and selecting investment projects . Net present value (NPV) Profitability index (PI) . Internal rate of return (IRR) Payback period (PB) Which method recognizes the real option aspects of a proposed capital investment? O IRR and PI O None of the methods (NPV, IRR, PI, PB, or discounted PB) recognizes the real dation aspects of a capital O NPV, IRR, PI, and discounted PB investment Read the following statements and categorize whether...

  • Please explain the answer. The Murka's project requires initial investments of $77 and its NPV is greater than zero. If...

    Please explain the answer. The Murka's project requires initial investments of $77 and its NPV is greater than zero. If the project has conventional cash flows and discount rate is above zero, then: The profitability index is greater than 1 The IRR is less than the firm's required rate of return The undiscounted payback period is shorter than the project's life. II ll only A) ll only B) I and Il only C) I and IIl only D) Il and...

  • Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $...

    Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $1,860,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,950,000 in annual sales, with costs of $1,060,000. The project requires an initial investment in net working capital of $150,000, and the fixed asset will have a market value of $175,000 at the end of...

  • An investment project requires a net investment of $200 million. The project is expected to generate...

    An investment project requires a net investment of $200 million. The project is expected to generate annual net cash flows of $25 million for the next 15 years with a one-time end of project cash flow of $3 million. The firm's cost of capital is 14 percent and marginal tax rate is 40 percent. a) Evaluate the project using the NPV method and state whether or not the project should be accepted. b) Evaluate the project using the IRR method...

  • The initial investment for this project will be $2.4 million. This amount is for depreciable equipment,...

    The initial investment for this project will be $2.4 million. This amount is for depreciable equipment, which will be depreciated over 4 years using the straight-line method to zero book value. A working capital investment of $300,000 will also be made at the beginning of the project (Time T=0). The entire working capital investment will be recovered at the end of the project. Initial marketing studies suggest that Earnings before Depreciation and Taxes for 6 years will be as shown...

  • Capital Budgeting Analysis : A firm is planning a new project that is projected to yield cash flo...

    Capital Budgeting Analysis : A firm is planning a new project that is projected to yield cash flows of - $595,000 in Year 1, $586,000 per year in Years 2 through 5, and $578,000 in Years 6 through 11. This investment will cost the company $2,580,000 today (initial outlay). We assume that the firm's cost of capital is 11%. (1) Draw a timeline to show the cash flows of the project. (2) Compute the project’s payback period, net present value...

  • I could use some help with the problem below: A project requires an initial outlay of...

    I could use some help with the problem below: A project requires an initial outlay of $50,000,000. The project life is determined to be 5 years at which time it will be discontinued and sold for scrap at $5,000,000. The project will generate net cash in-flows of $20,000,000 every year for the next five years. The projects required rate or discount rat is 11.25% 1. What is the projects Payback period? 2. What is the projects NPV? 3. What is...

  • A project requires, as its only cost, an initial investment of $17,000. It then generates positive future cash flows. Th...

    A project requires, as its only cost, an initial investment of $17,000. It then generates positive future cash flows. The appropriate discount rate is 22%. This project has an NPV of -$935 (negative NPV). What can you say about this project’s IRR? A project requires, as its only cost, an initial investment of $17,000. It then generates positive future cash flows. The appropriate discount rate is 22%. This project has an NPV of -$935 (negative NPV). What can you say...

  • an initial fixed asset a new three-year expansion project that requires Cochrane, Inc., is considering investment...

    an initial fixed asset a new three-year expansion project that requires Cochrane, Inc., is considering investment of $2,460,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,270,000 in annual sales, with costs of $1,260,000. The project requires an initial investment in net working capital of $162,000, and the fixed asset will have a market value of $187,000 at the end of the project. Assume that the tax rate...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT