Problem:
Charlie Company 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 below. Assume the firm has a 12% cost of capital.
- Year Cash inflows
- 1 $20,000
- 2 25,000
- 3 30,000
- 4 35,000
- 5 40,000
Required:
Question 1: Calculate the payback period for the proposed investment.
Question 2: Calculate the NPV for the proposed investment.
Note: Please show how to work it out.