A project requires an initial outlay of P 100 000. The relevant inflows associated with the project are P 60 000 in year one and P 50 000 in years two and three. The appropriate discount rate for this project is 11%. Compute the net present value. Should the company accept the project?

A project requires an initial outlay of P 100 000. The relevant inflows associated with the project are P 60 000 in year one and P 50 000 in years two and three. The appropriate discount rate for this project is 11%. Compute the net present value. Should the company accept the project?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 2PA: Jasmine Manufacturing is considering a project that will require an initial investment of $52,000...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A project requires an initial outlay of P 100 000. The relevant inflows associated with
the project are P 60 000 in year one and P 50 000 in years two and three. The appropriate discount rate
for this project is 11%. Compute the net present value. Should the company accept the project?

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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