Week 4 Capital Budgeting Practice problem:
You have the following data about a proposed project:
Cost of new equipment $80,000
Increase need for Working Capital (to be released at end of project)
$20,000
Length of project 6 years
Salvage Value of equipment at end of project $8,000
Annual cash savings if equipment is purchased (cash inflows) $28,500
Tax rate 35%
Discount rate required of all investements 14%
Required:
1. What is the annual accounting income?
2. What is the annual after tax cash flow?
3. What is the payback based upon the initial cash outflows?
4. What is the discounted payback based on the initial cash outflows?
5. What is the simple rate of return based upon the initial cash
outflows?
6. What is the net present value?
7. What is the net present value
8. What is the internal rate of return
9. Would you recommend this project? Why or why not.
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ACCT 556 Week 5 Homework Assignment
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