Determine the profitablity index under assuptions

Reference no: EM13334575

Dunn Manufacturing corporation is considering the purchase of a factory that maks values. these would be used by dunn to manufacture water pumps. the purchase would require an initial outlay of $1449968. the factory would have anestimated life of ten years and no residual value. currently, the compny buys 500,000 values per year at a cost of $1.50 each. if the factory were purchased, the values could be manufactured for $0.90 each.

Required:

a) determined the net present value of the proposed project and whether it should be accepted under each of the following assuptions.

1. the cost of capital is 12%

2. the cost of capital is 14%

3. the cost of capital is 16%

b) determine the profitablity index under the following assuptions.

1. the cost of capital is 12%

2. the cost of capital is 14%

3. the cost of capital is 16%

c) determne the internal rate of return of the proposed project and indicate whether it should be accepted under each of the folowing assuptions.

1. the cost of capital is 12%

2. the cost of capital is 14%

3. the cost of capital is 16%

Reference no: EM13334575

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