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Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000, CF0, in a machine having a...

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Finance

Reynolds Enterprises is attempting to evaluate the feasibilityof investing $85,000, CF0, in a machine havinga 5-year life. The firm has estimated the cash inflowsassociated with the proposal as shown below. The firm has a 12percent cost of capital.

End of Year (t)Cash Inflows (CFt)
1$18,000
2$22,500
3$27,000
4$31,500
5$36,000

a.   Calculate the payback period for the proposedinvestment.

b.   Calculate the NPV for the proposedinvestment.

c.   Calculate the IRR for the proposedinvestment.

d.   Evaluate the acceptability of the proposedinvestment using NPV and IRR. What recommendationwould you make relative to implementation of the project? Why?

Answer & Explanation Solved by verified expert
4.3 Ratings (779 Votes)
a Project Year Cash flow stream Cumulative cash flow 0 85000 85000 1 18000 67000 2 22500 44500 3 27000 17500 4 31500 14000 5 36000 50000 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening    See Answer
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