Explore BrainMass

# Key financial metrics for this capital budgeting projectkey financial metrics for this capital budgeting project

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Not sure I understand what is needed with the infomration given:

calculate for the Strident Marks CFO, key financial metrics for this capital budgeting project. These key metrics must include payback period, net present value, internal rate of return and modified rate of return. Describe what each of these metrics tells us.

#### Solution Preview

Payback period, of a project tells us the number of years required to recover the initial investment of that Project. This is calculated by dividing the cost of the project by the annual savings in costs or additional earning after tax but before depreciation.
<br>
<br>Pay Back Period= Cost of investment/Savings or Net Cash Inflow per year. That is 10000/7500 =1.33 years. This method is based on the idea that the original cost of the investment must be recovered if the company is to remain in effective existence. The best investment would be that which has the shortest payback period so that some profit may also be earned in addition to the recovery of the cost of the asset. Payback profitability= Saving or earnings per annum (Working Life-Payback Period) Payback profitability=\$7,500(3-1.33)= \$10,000 -rounded off.
<br>
<br>Net present value. The present value is a discounted cash flow method. In this method all net cash inflows are discounted the present value using the ...

\$2.49