FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question 5
A capital investment in an equipment with an upfront cost of $23,540 will provide you with the
following annual cash flow stream (paid end of year):
1. $2,000
2. $1,456
3. $3,230
4. $6,850
5. $2,384
6. $1,234
7. $5,987
8. $4,190
The project will incur the following cost for maintenance and repair (paid end of year):
Year 3: ($2,984)
Year 4: ($1,837)
Year 6-8: ($2,000)
Calculate the NPV of the investment and comment on whether you should invest in the project. Why or
why not? What is the IRR of the investment? The required rate of return is 3.5%.
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- Problem 5-3 Calculating Discounted Payback An investment project has annual cash inflows of $3,500, $4,400, $5,600, and $4,800, for the next four years, respectively. The discount rate is 14 percent. a. What is the discounted payback period for these cash flows if the initial cost is $6,200? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the discounted payback period for these cash flows if the initial cost is $8,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the discounted payback period for these cash flows if the initial cost is $11,300? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Discounted payback period b. Discounted payback period c. Discounted payback period years years yearsarrow_forwardBaghibenarrow_forwardQUESTION 10 A project will produce operating cash flows of $57,000 a year for 3 years. During the life of the project, inventory will be lowered by $10,000 and accounts receivable will increase by $20,000. Accounts payable will decrease by $5,000. The project requires the purchase of equipment at an initial cost of $90,000. The equipment will be salvaged at the end of the project creating a $17,000 after-tax cash inflow. At the end of the project, net working capital will return to its normal level. What is the net present value of this project given a required return of 12%? $48,772.08 $54,681.35 $56,209.19 $42,908.17 $44,141.41arrow_forward
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