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(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...

 


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Sep 13, 2020

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