You wish to evaluate a project requiring an initial investment of $45,000 and ha

Question

You wish to evaluate a project requiring an initial investment of $45,000 and having a useful life of 5 years. What minimum amount of annual cash inflow do you need if your firm has an 8% cost of capital? If the project is forecast to earn $12,500 per year over the 5 years, what is its IRR? Is the project acceptable?

Like most firms in its industry, Yeastime Bakeries uses a subjective risk assessment tool of its own design. The tool is a simple index by which projects are ranked by level of perceived risk on a scale of 0

Explanation / Answer

-45000+12500PVIFA(R,5) r= 12.05% since current IRR= 6.5, the project can be accepted. for the 1st part the NPV is not mentioned.

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