For a given project, the initial investment is $280,000, the required return for assets of...
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Accounting
For a given project, the initial investment is $280,000, the required return for assets of this risk is 10%, and the average book value = $78,000.
The cash flows (CF) and net income (NI) in $ for it for 4 years is given below:
Year 1: CF = 77,000; NI = 18,500
Year 2: CF = 87,000; NI = 20,800
Year 3: CF = 107,000; NI = 22,000
Year 4: CF = 132,000; NI = 21,000
A. Calculate the payback period of the above project if the project is given a pre-set limit of 3 years to recover the initial investment. Should the project be accepted or rejected based on the payback period value? [ 3 Marks]
B. The required average accounting return is 25%. Calculate the accounting rate of return (ARR) of the above project. Should the project be accepted or rejected based on the ARR value? Explain. [3 Marks]
C. Calculate the net present value (NPV) of the above project. Should the project be accepted or rejected based on the NPV value?
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