Question

Please make sure that you show all your work when solving the problems. Feel free to...

Please make sure that you show all your work when solving the problems. Feel free to make any assumptions whenever you feel necessary. Just make sure that you clearly state your assumptions.

Should you accept a project that costs \$125,000 initially, and provides cash flows of \$45,000, \$60,000 and \$75,000 for the following three years, given that the project has the same risk as another project that requires an initial investment of \$50,000 and requires an annual cash flow of \$9,000 forever to financially break-even?

 Same risk project will help to determine the rate of return applicable Initial outlay 50000 Inflow forever 9000 Rate of return= 9000/50000 Rate of return= 18.000%
 18.00% Year Cash Flow PV factor = 1/ (1+r)^t PV 0 (125,000) 1.000 (125,000.00) 1 45,000 0.847 38,135.59 2 60,000 0.718 43,091.07 3 75,000 0.609 45,647.32 NPV 1,873.97 Since NPV is positive, the project should be accepted

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