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Determine the payback period for the project

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1. Payback period Jordan Enterprises is considering a capital expenditure that requires an initial investment of $42,000 and returns after-tax cash inflows of $7,000 per year for 10 years. The firm has a maximum acceptable payback period of 8 years.

a. Determine the payback period for this project.
b. Should the company accept the project? Why or why not?

 

2. NPV Calculate the net present value (NPV) for the following 15-year projects. Comment on the acceptability of each. Assume that the firm has a cost of capital of 9%.

a. Initial investment is $1,000,000; cash inflows are $150,000 per year.
b. Initial investment is $2,500,000; cash inflows are $320,000 per year.
c. Initial investment is $3,000,000; cash inflows are $365,000 per year.

 

3. Net present value: Independent projects Using a 14% cost of capital, calculate the net present value for each of the independent projects shown in the following table, and indicate whether each is acceptable.

 

 

Project A

Project B

Project C

Project D

Project E

Initial investment (CFO)

$26,000

$500,000

$170,000

$950,000

$80,000

Year (t)

 

Cash inflows (CFt)

 

 

1

$4,000

$100,000

$20,000

$230,000

$ 0

2

4,000

120,000

19,000

230,000

0

3

4,000

140,000

18,000

230,000

0

4

4,000

160,000

17,000

230,000

20,000

5

4,000

180,000

16,000

230,000

30,000

6

4,000

200,000

15,000

230,000

0

7

4,000

 

14,000

230,000

50,000

8

4,000

 

13,000

230,000

60,000

9

4,000

 

12,000

 

70,000

10

4,000

 

11,000

 

 

Reference no: EM131032956

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