Consider the following cash flows: Year 0 1 2 3 4 5 6 Cash Flow -$8,000 $3,000 $3,600 $2,700 $2,500 $2,100 $1,600 Payback. The company requires all projects to payback within 3 years. Calculate the payback period. Should it be accepted or rejected? Discounted Payback. Calculate the discounted payback using a discount rate of 10%. Should it be accepted or rejected? IRR. Calculate the IRR for this project. The company’s required rate of return is 10%. Should it be accepted or rejected? NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected? PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?

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14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 21P

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Consider the following cash flows:

Year 0 1 2 3 4 5 6

Cash Flow -$8,000 $3,000 $3,600 $2,700 $2,500 $2,100 $1,600

Payback. The company requires all projects to payback within 3 years. Calculate the payback period. Should it be accepted or rejected?
Discounted Payback. Calculate the discounted payback using a discount rate of 10%. Should it be accepted or rejected?
IRR. Calculate the IRR for this project. The company’s required rate of return is 10%. Should it be accepted or rejected?
NPV. Using a 10% required rate of return, calculate the NPV for this project. Should it be accepted or rejected?
PI. Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?

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