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Accounting Problem

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Question

Capital Budgeting Problem;George and William Phelps are considering a 6 year project that would require a cash outlay of $80,000 for equipment and an additional $20,000 for working capital that would be released at the end of the project. The equipment would be depreciated evenly over the 6 years and have a salvage value of $8,000 at the end of 6 years. The project would generate before tax annual cash inflows of $28,500. The tax rate is 35% and the company?s discount rate is 14%.;Required;1. What is the annual accounting income?;2. What is the annual after tax cash flow?;3. What is the payback based upon the initial cash outflows?;4. What is the discounted payback based upon the initial cash outflows?;5. What is the simple rate of return based upon the initial cash outflows?;6. What is the net present value?;7. What is the internal rate of return?;8. Would you recommend this project or not? Why?

 

Paper#75229 | Written in 18-Jul-2015

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