You are contemplating a business venture which involves an

Reference no: EM13801961

You are contemplating a business venture, which involves an initial investment of $150,000 followed by an additional investment of $30,000 at the end of first year and $20,000 at the end of 2nd year. You want to analyze the venture over a project life of 10 years (measured from today). Cost of Capital (MARR) = 12%. The venture will result in benefit of $170,000 in the 3rd year and increasing at 4% per year. The operating expenses are estimated to be $50,000 in the 3rd year and decreasing at 2% per year. At the end of the project life, you will sell the business for $20,000. Do the analysis using before tax cash flows. In before tax analysis, taxes are ignored and depreciation is not relevant.

Compute:

a) Net Present Value (NPV)

b) Profitability Index (PI)

c) Internal Rate of Return (IRR)

d) Discounted Payback Is the project acceptable? Briefly explain why.

Reference no: EM13801961

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