Capital Budgeting The Recycled Paper Inc. corporation is considering a project with the following cash flows. Year Cash Flow 0 ($75,000) 1 $18,500 2 $18,500 3 $18,500 4 $18,500 5 $12,500 6 $12,500 7 $12,500 8 $12,500 Refer...

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Finance

Capital Budgeting
The Recycled Paper Inc. corporation is considering a projectwith the following cash flows.
Year
Cash Flow
0
($75,000)
1
$18,500
2
$18,500
3
$18,500
4
$18,500
5
$12,500
6
$12,500
7
$12,500
8
$12,500
Refer to the Capital Budgeting narrative. What is the paybackperiod of the proposed project?
A. 1.28 years
B. 2.28 years
C. 3.28 years
D. 4.08 years
Refer to the Capital Budgeting narrative. What is the netpresent value of the proposed project if the discount rate is12.5%?
A. $4,059.4
B. $3,487.5
C. $4,625.3
D. -$3.984.6
Refer to the Capital Budgeting narrative. What is theprofitability index of the proposed project if the discount rate is12.5%?
A. 0.89
B. 1.05
C. 2.03
D. 3.03
Refer to the Capital Budgeting narrative. What is the IRR of theproposed project?
A. 13.57%
B. 18.35%
C. 12.74%
D. 14.20%

Answer & Explanation Solved by verified expert

4.2 Ratings (914 Votes)

1. Using excel formula to calculate pay back period
Year   0   1   2   3   4   5   6   7   8
Cash Flow   -75000.00   18500.00   18500.00   18500.00   18500.00   12500.00   12500.00   12500.00   12500.00
Cumulative Cash flow    -75000.00   -56500.00   -38000.00   -19500.00   -1000.00   11500.00   24000.00   36500.00   49000.00
Payback Period   4.08 (4+1000/12500)
Option d is correct option

2. NPV of project =PV of Cash Flows -Investment =18500/1.125+18500/1.125^2+18500/1.125^3+18500/1.125^4+12500/1.125^5+12500/1.125^6+12500/1.125^7+12500/1.125^8-75000 =4059.40 (Option a is correct option)

3. Profitability Index(PI) =1+NPV/Investment =1+4059.40/75000 =1.05

4.   Using Financial Calculator
CF0 =-75000;CF1 =18500;CF2 =18500; CF3 =18500; CF4 =18500; CF5=12500; CF6=12500; CF7 =12500; CF8=12500;
CPT IRR =14.20%

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Year	Cash Flow
0	($75,000)
1	$18,500
2	$18,500
3	$18,500
4	$18,500
5	$12,500
6	$12,500
7	$12,500
8	$12,500