dison Company is evaluating a project requiring a capital expenditure of $400,00

Question

dison Company is evaluating a project requiring a capital expenditure of $400,000. The project has an estimated life of follows: 8 years and no salvage value. The estimated net income and net cash flow from the project ar Year $21,000 21,000 21,000 21,000 21,000 21,000 21,000 21,000 $71,000 71,000 71,000 71,000 71,000 71,000 71,000 71,000 4 The company's minimum desired rate of return is 10%. Required a. Calculate average (accounting) rate of return. b. Calculate payback period c. Calculate net present value.

Explanation / Answer

a 21000 / (400000 + 0)/2 10.50 b 400000 / 71000 5.63 Years c Year Cash Flow PVA Factor @ 10% Discounted Cash Flow 0      (4,00,000)           1.000     (4,00,000) 1 to 8            71,000           6.145       4,36,295

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