Consider the following project (MARR = 12%): Year 0 1 2 A -90,000 32,000 32,000 3 16,000 4 5 6 16,000 16,000 16,000 7 32,000 a. Plot the project balances values over the course of the cash flow. Determine the discounted payback period and the future worth of the investment from the project balance values. b. How much is the project's capitalized worth (CEA) if the cash flow pattern for the project repeats itself every seven years going forward?

Consider the following project (MARR = 12%): Year 0 1 2 A -90,000 32,000 32,000 3 16,000 4 5 6 16,000 16,000 16,000 7 32,000 a. Plot the project balances values over the course of the cash flow. Determine the discounted payback period and the future worth of the investment from the project balance values. b. How much is the project's capitalized worth (CEA) if the cash flow pattern for the project repeats itself every seven years going forward?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 1E: A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash...

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A firm has the opportunity to invest in a project having an initial outlay of $20,000. Net cash inflows (before depreciation and taxes) are expected to be $5,000 per year for five years. The firm uses the straight-line depreciation method with a zero salvage value and has a (marginal) income tax rate of 40 percent. The firms cost of capital is 12 percent. Compute the IRR and the NPV. Should the firm accept or reject the project?
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