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What is the present value of project

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Reference no: EM132491418

A firm wishes to secure a contract that is expected to yield the after - tax net cash flows at the end of each year listed below. To secure the contract, the firm must spend $30,000 today to retool its plant. This retooling will have no salvage value at the end of eight years. The firm needs to earn at least a 9% rate of return on its investments.

  • What is the present value of this project? What is the net present value of this project?
  • What is the profitability index of this project?
  • What is the payback period for this project? What is the discounted payback period?
  • Is the internal rate of return higher or lower than 9% for this project
  • Should the firm make this investment (assume they have the $30,000 available)?

Year

After-tax Net

Cash Flow:

Year 1 - $4,000

Year 2 - $4,500

Year 3 - $7,000

Year 4 - $8,000

Year 5 - $9,000

Year 6 - $7,000

Year 7 - $5,000

Year 8 - $3,000

Reference no: EM132491418

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