Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000, CF0, in a machine having a...

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Finance

Reynolds Enterprises is attempting to evaluate the feasibilityof investing $85,000, CF₀, in a machine havinga 5-year life. The firm has estimated the cash inflowsassociated with the proposal as shown below. The firm has a 12percent cost of capital.
End of Year (t) **Cash Inflows (CF_t)**
1 $18,000
2 $22,500
3 $27,000
4 $31,500
5 $36,000
a.Â Â Calculate the payback period for the proposedinvestment.
b.Â Â Calculate the NPV for the proposedinvestment.
c.Â Â Calculate the IRR for the proposedinvestment.
d.Â Â Evaluate the acceptability of the proposedinvestment using NPV and IRR. What recommendationwould you make relative to implementation of the project? Why?

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4.3 Ratings (779 Votes)

a Project Year Cash flow stream Cumulative cash flow 0 85000 85000 1 18000 67000 2 22500 44500 3 27000 17500 4 31500 14000 5 36000 50000 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening See Answer

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End of Year (t)	*Cash Inflows (CF_t)*
1	$18,000
2	$22,500
3	$27,000
4	$31,500
5	$36,000