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Which proposal should be accepted

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$54,200 is required to start a project. Before investing the cash I must see if it is worth it with the following info:

* has an expected life of five years and will generate after-tax cash flows to the company as a whole of $20,608 at the end of each year over its five-year life
* besides the $20,608 cash flows from operations during the fifth and final year, there will be an additional cash inflow of $13,200 at the end of the fifth year associated with the salvage value of the machine, making the cash flow in year 5 equal to $33,808
* cash flows associated with this project look like this:

Given a require rate of return of 15%, calculate the following:
a) Net present value (NPV).
b) Internal rate of return (IRR)
c) Payback period

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Solution Summary

The solution looks at different proposals to start a project and decides which to accept. It looks at the after-tax cash flows to the company and operations.

Solution provided by:
Manal Elkhoshkhany, MBA
Education
  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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