Answer to Question #96856 in Finance for ABU

Question

A company is considering an investment proposal to install new milling controls. The project will cost Kes50,000. The facility has a life expectancy of five years and no salvage value. The company’s tax rate is 40%. The estimated cash flows from the proposed investment proposal are as follows:

Year CF
1 10,000
2 11,000
3 14,000
4 15,000
5 25,000

Compute:
a. Accounting Rate of Return and advise management if
the required rate of return is 6 %

b. Traditional Payback period and advise management
on the feasibility of the project

c. Discounted payback period at 6% discounting factor

d. Net present value at 6% discounting factor and advise
management on the project’s feasibility

e. Net present value at 15% discounting factor and advise
management on the project’s feasibility

f. Internal rate of return and explain its significance to the firm

g. Profitability Index at 10% discounting factor

Answer 1

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