Alyeska Salmon Inc., a large salmon canning firm operating out of Valdez, Alaska, has a new...

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Finance

Alyeska Salmon Inc., a large salmon canning firm operating outof Valdez, Alaska, has a new automated production line project itis considering. The project has a cost of $300,000 and is expectedto provide after-tax annual cash flows of $80,000 for seven years.The cost of capital for the firm is 15 percent.
What is the payback period of the project?
3.33 years
3.75 years
4.25 years
4.82 years
5.33 years
1 points
What is the NPV of the project?
29,625
32,834
39,158
43,238
61,157
What is the EAA (Equivalent Annual Annuity) cash flow of theproject?
6,372
7,131
7,892
9,335
10,341
What is the IRR of the project?
13.34%
15.76%
16.93%
17.51%
18.58%
What is the profitability index (PI) of the project?
1.08
1.11
1.25
1.32
1.45
The firm's management is uncomfortable with the IRR reinvestmentassumption and prefers the modified IRR approach. What is theproject's MIRR?
15.13%
15.75%
16.72%
17.35%
19.18%

Answer & Explanation Solved by verified expert

4.3 Ratings (893 Votes)

Project Year Cash flow stream Cumulative cash flow 0 300000 300000 1 80000 220000 2 80000 140000 3 80000 60000 4 80000 20000 5 80000 100000 6 80000 180000 7 80000 260000 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening between year 3 and 4 therefore by interpolation payback period 3 0600002000060000 375 Years Project Discount rate 15000 Year 0 1 2 3 4 5 6 7 Cash flow stream 300000 80000 80000 80000 80000 80000 80000 80000 Discounting factor 1000 1150 1323 1521 1749 2011 2313 2660 Discounted cash flows project 300000000 69565217 60491493 52601299 45740260 39774139 34586208 See Answer

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Transcribed Image Text

Alyeska Salmon Inc., a large salmon canning firm operating outof Valdez, Alaska, has a new automated production line project itis considering. The project has a cost of $300,000 and is expectedto provide after-tax annual cash flows of $80,000 for seven years.The cost of capital for the firm is 15 percent.What is the payback period of the project?3.33 years3.75 years4.25 years4.82 years5.33 years1 points What is the NPV of the project?29,62532,83439,15843,23861,157What is the EAA (Equivalent Annual Annuity) cash flow of theproject?6,3727,1317,8929,33510,341What is the IRR of the project?13.34%15.76%16.93%17.51%18.58%What is the profitability index (PI) of the project?1.081.111.251.321.45The firm's management is uncomfortable with the IRR reinvestmentassumption and prefers the modified IRR approach. What is theproject's MIRR?15.13%15.75%16.72%17.35%19.18%