question archive An investment project requires a net investment of $100,000
An investment project requires a net investment of $100,000
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An investment project requires a net investment of $100,000. The project is expected to generate annual net cash flows of $28,000 for the next 5 years. The firm's cost of capital is 12%. Determine the payback period accounting for the present value of future cash flow (ie. Present value calculations). Should the project be done? After considering present value is the 100,000 investment recovered in 3-4 years, 4-5 years or over 5 years?
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Answer:
payback period= 3.571years
PV= 28000PVIFA(12%,5)= 100933.733
Yes, since the PV of the project is greater than 100000( net investment) it must be accepted.
the investment is recovered in 3-4 year
