Answer to Question #305760 in Financial Math for james

Question

A company is considering an investment proposal to install new milling controls. The project will cost Kshs 50,000,000. 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 Kshs 000

1 13,000

2 14,000

3 18,000

4 23,000

5 25,000

Compute:

a. Accounting Rate of Return (2Marks)

b. Discounted payback period at 6% discounting factor (4 Marks)

c. Net present value at 15% discounting factor and advise management on the project’s feasibility ( 4 Marks)

Answer 1

The computations are shown below: