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Determine the pbp and arr of the investment proposal

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Reference no: EM132678501

Company ABC is considering an investment proposal to install new milling controls at a cost of Br.50,000.The facility has a life expectancy of 5 year and no salvage value. The tax rate is 35%.Assume the company uses straight line depreciation method and cost of capital is 10%.

The estimated cash flows before depreciation and tax are as follows:

Year          cash flows
1.             Br.10,000
2.             Br.10,692
3.              Br.12769
4.             Br.13,462
5.             Br.20,385

Required:

Problem (a) determine the PBP, ARR, NPV and IRR of the investment proposal.

Problem (b) should the company accept or reject the proposal and why?

Reference no: EM132678501

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