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An initial investment of $250,000 is needed for a project expected to last 5 years...

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Accounting

An initial investment of $250,000 is needed for a project expected to last 5 years with no salvage value. The expected annual cash inflows are:

  • Year 1: $70,000
  • Year 2: $80,000
  • Year 3: $90,000
  • Year 4: $100,000
  • Year 5: $110,000

The depreciation is straight-line, and the corporate tax rate is 20%. The required return is 15%.

Required:

  1. Determine the Annual Depreciation.
  2. Calculate the Accounting Rate of Return (ARR).
  3. Calculate the Payback Period (PBP).
  4. Calculate the Net Present Value (NPV).
  5. Calculate the Internal Rate of Return (IRR).

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