Jeremy Yospin Inc. has an investment project that has annual cash flows of $8,80

Question

Jeremy Yospin Inc. has an investment project that has annual cash flows of $8,800, $ 9,000, $10,000, $8,700 and $9,500 in next five years, and a discount rate of 10%. a) Find out the payback period, Discounted Payback period, NPV, and profitability index if the initial cost is $28,000. Should the company consider investing in the project? b) Find out the payback period, Discounted Payback period, NPV, and profitability index if the initial cost is $35,000. Should the company consider investing in the project?

Explanation / Answer

a) payback period = 3+0.02 = 3.02 years discounted payback period = 3.85 years NPV = -28000 + 8800/1.1 +9000/1.1^2 + 10000/1.1^3 +8700/1.1^4 +9500/1.1^5 = 6792.13 profiatbility index = 6792.13/28000 = 0.25 since NPV is positive then project wil be accepted b)payback period = 3.08 years discounted payback period = 4.95 years NPV = -35000 + 8800/1.1 +9000/1.1^2 + 10000/1.1^3 +8700/1.1^4 +9500/1.1^5 = -207.87 profitability index = -207.87/35000 = -0.005 project will not be accepted because negative NPV

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.