Use investment criteria and capital budgeting techniques to evaluate a project which involves equipment that costs $300,000 and will last five years before it must be replaced. The 5 year project is expected to produce after-tax cash flows of $60,000 in the first year, and increase by $20,000 annually; the after-tax cash flow in year 5 will reach $140,000. The equipment will have no salvage value after five years. The discount rate is 15%.
A. What is the payback period?
B. What is the discounted payback period?
C. What is the IRR?
D. What is the NPV?
E. What is the Profitability Index?
F. What do the investment criteria say about accepting or rejecting the project?