Find discounted payback period and average accounting return

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Reference no: EM131878174

Project Evaluation & Capital Investment

Volume: 52,000 units --- 57,000 units --- 61,000 units

Price: $4.50 per unit --- $4.25 per unit --- $3.85 per unit

Marginal Cost: $3.25 per unit --- $2.50 per unit --- $2.20 per unit

Expected Life of Project: 3 years

Fixed Costs: $14,000 per year

Capital requirement: $100,000 (90% depreciated over the 3-year span)

Market value of equipment in 3 years: $10,000

Charge to Net Working Capital: $30,000 (at t = 0, then recapture at t = 3)

Tax rate: 34%

Risk free rate (3-year): 2.5%

Total Market Return: 9.95%

Project Beta: 2.30

Project Debt/Equity Structure: 0.70

Cost of Debt (pretax): 5.5%

FIND:

1. Project Cash Flow (Use Cash Flow From Assets [CFFA]) in Year 3

2. Project Discount Rate (Hurdle Rate à Use WACC at estimated capital structure))

3. NPV

4. IRR

5. Payback Period

6. Discounted Payback Period

7. Average Accounting Return

8. Profitability Index

9. Do you take this project?

Reference no: EM131878174

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