Solution-Compute the payback period for the equipment

Compute the payback period for the equipment

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Reference no: EM133123948

Question - Wira Berhad has provided the following information concerning a proposed investment project:

	$000	$000
Sales		3000
Less: variable expense		(1800)
Contribution margin		1200
Less: fixed expense
Administration and selling expense	(700)
Depreciation	(300)	(1000)
Net operating income		200

At the end of eight years, the project would be terminated and the equipment would have no salvage value. The cost of capital of the company is 12%.

Required -

(i) Compute the net present value. Should the company accept the project?

(ii) Compute the project's internal rate. Would the equipment be purchased if the company's required rate of return in 5%?

(iii) Compute the payback period for the equipment. If the company requires payback period of four years or less, would equipment be purchased?

Reference no: EM133123948

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Compute the payback period for the equipment

Reference no: EM133123948

Reference no: EM133123948

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