Basic Capital Budgeting Techniques Answer each independent question, (a) through (e). a. Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for 5 years. What is the payback period (in years, rounded to 2 decimal places) for this investment under the assumption that the cash inflows occur evenly throughout the year? b. Project B costs $5,000 and will generate after-tax cash inflows of $500 in year 1, $1,200 in year 2, $2,000 in year 3, $2,500 in year 4, and $2,000 in year 5. What is the payback period (in years, rounded to 2 decimal places) for this investment assuming that the cash inflows occur evenly throughout the year? c. Project C costs $5,000 and will generate net cash inflows of $2,500 before taxes each year for 5 years. The firm uses straight-line depreciation with no salvage value and is subject to a 25% tax rate. What is the payback period (in years, and rounded to 2 decimal places) under the assumption that all cash inflows occur evenly throughout the year? d. Project D costs $5,000 and will generate sales of $4,000 each year for 5 years. The cash expenditures will be $1,500 per year. The firm uses straight-line depreciation with an estimated salvage value of $500 and has a tax rate of 25%. (1) What is the accounting (book) rate of return based on the original investment, rounded to 2 decimal places? (2) What is the book rate of return based on the average book value, rounded to 2 decimal places? e. What is the NPV for each of the projects (A) through (D)? Assume that the firm requires a minimum after-tax return of 8% on all investments. Use the built-in NPV function for all calculations; round all answers to nearest whole dollar.
Already registered? Login
Not Account? Sign up
Enter your email address to reset your password
Back to Login? Click here