Calculate the payback period for the proposed investment

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Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000 in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. The firm has a 12 percent cost of capital.

End of Year ( t )                  Cash Inflows ( CF t )

1                                             $18,000

2                                              $22,500

3                                              $27,000

4                                              $31,500

5                                              $36,000

a. Calculate the payback period for the proposed investment.

b. Calculate the NPV for the proposed investment.

c. Calculate the IRR for the proposed investment.

d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?

Reference no: EM13769117

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