An investment project requires a net investment of $100,000. The project is expected to generate annual net cash flows of $28,000 for the next 5 years. The firm's cost of capital is 12%. Part 1 - Determine the payback period for the project Part 2 – Determine the payback period accounting for the present value of future cash flow (ie. Present value calculations) Should the project be done? After considering present value is the 100,000-investment recovered in 3-4 years, 4-5 years or over 5 years?

Payback period = Initial Investment / Net annual cashflow

Answered: An investment project requires a net…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 13E: Buena Vision Clinic is considering an investment that requires an outlay of 600,000 and promises a...

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An investment project requires a net investment of $100,000. The project is expected to generate annual net cash flows of $28,000 for the next 5 years. The firm's cost of capital is 12%.
Part 1 - Determine the payback period for the project
Part 2 – Determine the payback period accounting for the present value of future cash flow (ie. Present value calculations) Should the project be done? After considering present value is the 100,000-investment recovered in 3-4 years, 4-5 years or over 5 years?

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