(solution) 3) Capital Budget Decision Problem Compute payback, NPV and IRR

(solution) 3) Capital Budget Decision Problem Compute payback, NPV and IRR

 3) Capital Budget Decision Problem

Compute payback, NPV and IRR given this information:

 

New packaging equipment cost: $220,000

Estimated useful life: 7 years

Discount rate (Required rate of return): 10%

Net annual cash inflow: $50,000

1 Payback Period:
Year Inflow
0
1
2
3
4
5 Cumulative Inflow
-220,000
-220,000
50,000
-170,000
50,000
-120,000
50,000
-70,000
50,000
-20,000
50,000
30,000 Payback Period = 20,000 / 50,000 = 4.4…