Capital budgeting problem

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Capital Budgeting Problem

George and William Phelps are considering a 6 year project that would require a cash outlay of $80,000 for equipment and an additional $20,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 6 years and have a salvage value of $8,000 at the end of 6 years. The project would generate before tax annual cash inflows of $28,500. The tax rate is 35% and the company's discount rate is 14%.

Required:

1. What is the annual accounting income?

2. What is the annual after tax cash flow?

3. What is the payback based upon the initial cash outflows?

4. What is the discounted payback based upon the initial cash outflows?

5. What is the simple rate of return based upon the initial cash outflows?

6. What is the net present value?

7. What is the internal rate of return?

8. Would you recommend this project or not? Why?

Reference no: EM13765140

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