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Estimate the payback period for investors in the firm

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Reference no: EM131683031

Question: You are provided with the projected income statements for a project:

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The tax rate is 40%.

• The project required an initial investment of $15,000 and an additional investment of $2,000 at the end of year 2.

• The working capital is anticipated to be 10% of revenues, and the working capital investment has to be made at the beginning of each period.

a. Estimate the free cash flow to the firm for each of the 4 years.

b. Estimate the payback period for investors in the firm.

c. Estimate the net present value to investors in the firm, if the cost of capital is 12%. Would you accept the project?

d. Estimate the internal rate of return to investors in the firm. Would you accept the project? Consider the project described in problem.

Reference no: EM131683031

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