Problem: Rieger International is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5 year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital.
Year (t) Cash inflows (CFt) should be a little t
1 $20,000
2 $25,000
3 $30,000
4 $35,000
5 $40,000
Q1. Calculate the payback period for the proposed investment.
Q2. Calculate the net present value (NPV) for the proposed investment.
Q3. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment.
Q4. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?