Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. for a given project, the initial investment is $28

For a given project, the initial investment is $280,000, the required return for assets of...

50.1K

Verified Solution

Question

Accounting

For a given project, the initial investment is $280,000, the required return for assets of this risk is 10%, and the average book value = $78,000.

The cash flows (CF) and net income (NI) in $ for it for 4 years is given below:

Year 1: CF = 77,000; NI = 18,500

Year 2: CF = 87,000; NI = 20,800

Year 3: CF = 107,000; NI = 22,000

Year 4: CF = 132,000; NI = 21,000

A. Calculate the payback period of the above project if the project is given a pre-set limit of 3 years to recover the initial investment. Should the project be accepted or rejected based on the payback period value? [ 3 Marks]

B. The required average accounting return is 25%. Calculate the accounting rate of return (ARR) of the above project. Should the project be accepted or rejected based on the ARR value? Explain. [3 Marks]

C. Calculate the net present value (NPV) of the above project. Should the project be accepted or rejected based on the NPV value?

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students