1) Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The com
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Question
1) Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $819,322, $863,275, $937,250, $1,018,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment.
2) McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $812,500, and $1,245,000 over the next three years. What is the payback period for this project?
Explanation / Answer
a.
b.
Payback is between 2 and 3 years as seen from above table.
Payback = 2 + |-512500|/1245000 = 2.41 years
Year Cash Flow 1.15^t Discounted CF 0 (4,133,250.00) 1 (4,133,250.00) 1 819,322.00 1.15 712,453.91 2 863,275.00 1.3225 652,759.92 3 937,250.00 1.520875 616,257.09 4 1,018,610.00 1.7490063 582,393.57 5 1,212,960.00 2.0113572 603,055.49 6 1,225,000.00 2.3130608 529,601.30 NPV -436,728.70Related Questions
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