Capital Budgeting - Net Present Value (NPV) Jay is considering a 5-year project which involves the following: The initial investment in equipment of $540,000. Inventory and other working capital requirements of $20,000 are projected. Projected annual cash receipts on this project of $200,000. Projected annual cash expenses of $40,000. Major repairs (non-capital) of $20,000 would be required in year 3. The equipment is estimated to have a resale value of $25,000 at the conclusion of the project. Jay's cost of capital is 14% Required: Calculate the NPV on this project. Calculate the payback period on this project.
Capital Budgeting - Net Present Value (NPV) Jay is considering a 5-year project which involves the following: The initial investment in equipment of $540,000. Inventory and other working capital requirements of $20,000 are projected. Projected annual cash receipts on this project of $200,000. Projected annual cash expenses of $40,000. Major repairs (non-capital) of $20,000 would be required in year 3. The equipment is estimated to have a resale value of $25,000 at the conclusion of the project. Jay's cost of capital is 14% Required: Calculate the NPV on this project. Calculate the payback period on this project.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 26BEB
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Capital Budgeting -
Jay is considering a 5-year project which involves the following:
- The initial investment in equipment of $540,000. Inventory and other
working capital requirements of $20,000 are projected. - Projected annual cash receipts on this project of $200,000.
- Projected annual cash expenses of $40,000.
- Major repairs (non-capital) of $20,000 would be required in year 3.
- The equipment is estimated to have a resale value of $25,000 at the conclusion of the project.
- Jay's cost of capital is 14%
Required:
- Calculate the NPV on this project.
- Calculate the payback period on this project.
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