(Payback, ARR, NPV) Tropic Investments is considering a project involving an initial cash outlay for an asset of $200,000. The asset is depreciated over five years at 20% per year (based on the value of the investment at the beginning of each year). The cash flows from the project are expected to be as follows:
|
Inflow |
Outflow |
|
|
Year 1 |
$ 75,000 |
$30,000 |
|
Year 2 |
90,000 |
40,000 |
|
Year 3 |
100,000 |
45,000 |
|
Year 4 |
100,000 |
50,000 |
|
Year 5 |
75,000 |
40,000 |
- What is the payback period?
- What is the return on investment (each year and average)?
- Assuming a cost of capital of 10% and ignoring inflation, what is the net present value of the cash flows?
- Should the project be accepted?