Calculate projects payback period and average rate of return

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Reference no: EM133094990

ANTIVOLA ROBOTICS INC.

Antivola Robotics is considering the acquisition of electronic testing equipment having a 5-year life and a cost of 1'11434,000. The equipment will be depreciated using accelerated, methods. Net working capital of Ph67,300 will be invested when the company implements the project. Antivola's financial manager, Joey Radovan estimates that the equipment can be sold for Ph75,000 and that the entire amount of net working capital can be recaptured when the company terminates the project. The company's marginal cost of capital is 12%, and this project is typical of the company's other projects. Antivola has a 34% tax rate so that any loss from this project will reduce taxes.

The schedules below show the pro-forma operating statements and incremental cash flows associated with the project:

1261_Operating statement.jpg

REQUIRED :

A. Calculate the project's payback period and average rate of return. Should the financial manager accept the project if the maximum acceptable payback period is 4 years and the minimum acceptable average rate of return is 15%7

B. Calculate and interpret the IRR, NPV, and PI of the project.

Reference no: EM133094990

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