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The SL Energy Group is planning a new investment project which is expected to yield cash inflows of $285,000 per year in Years 1 through 3, $250,000 per year in Years 4 through 8, and $198,000 in Years 9 through 12. This investment will cost the company $1,000,000 today (initial outlay). We assume that the firm's cost of capital is 7.8%.

(1) Draw a time line to show the cash flows of the project.

(2) Compute the project’s payback period, net present value (NPV), profitability index (PI), and internal rate of return (IRR).

(3) Discuss whether the project should be taken.

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Sixta Kovacek
Sixta KovacekLv2
28 Sep 2019

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The SL High Tech is planning a new investment project which is expected to yield cash inflows of $395,000 per year in Years 1 through 3, $286,000 per year in Years 4 through 6, and $278,000 in Years 7 through 10. This investment will cost the company $1,850,000 today (initial outlay). We assume that the firm's cost of capital is 7.5%.
(1) Draw a time line to show the cash flows of the project.
(2) Compute the project’s payback period, net present value (NPV), profitability index (PI), internal rate of return (IRR), and modified internal rate of return (MIRR).
(3) Discuss whether the project should be taken.

Given the following cash flows, and a required return (cost of capital, risk-adjusted-discount-rate) of 15%, answer the questions below.

'

Initial Outlay - ($350,000) RRR - 15%

OCF1 - $100,00

OCF2 - $100,00

OCF3 - $100,000

OCF4 - $100,000

OCF5 - $150,000

A) What is the project’s projected Payback period? The firm's payback requirement is 2 years.

B) What is the project’s projected NPV?

C) What is the project’s projected Profitability index?

D) What is the project’s projected internal rate of return?

E) Should this the firm invest in this project? Why or why not?

Problem 1

All Techniques- Decision among mutually exclusive investments. Pound industries is attempting to select the best of three mutually exclusive projects. The initial investment and after tax cash inflows associated with these projects are shown in the following table

Cash flow Project A Project B Project C

Initial investment (CF) $80,000 $110,000 $110,000

Cash inflows (CF), T=1 to 5 $25,000 $37,000 $38,500

Calculate the payback period for each project

Calculate the net present value (NPV) of each project, assuming that the fimrm has a cost of capital equal to 11%

Calculate the internal rate of return (IRR) for each project

Indicate which project you would recommend

A-the payback period of project A is ___years

the payback period of project B is ___years

the payback period of project C is ___years

B-the NPV of project A is $____

the NPV of project B is $____

the NPV of project C is $____

C- The IRR of project A is _____

The IRR of project B is _____

The IRR of project C is _____

D- which project would you recommend?

Project A

Project B

Project C

Problem 2

IRR, investment life, and cash inflows Oak enterprise accepts projects earning more than the firms 15% cost of capital. Oak is currently considering a 10 year project that provides annual cash inflows of $50,000 and requires an initial investment of $328,300

Deter the IRR of the project is it acceptable

Assuming that the cash inflos continue to be $50,000 per year how many additional years would the flows have to continue to make the project acceptable (that is, to make it have an IRR of 15%?

A. the project IRR is ___%

Is the project acceptable?

Yes or no

B. assuming that the cash inflows continue to be $50,000 per year the number of additional years the flows would have to continue to make the project acceptable at the 15% discount rate is ____ additional years

C) with the given life, initial investment and cost of capital the minimum annual cash inflow that the firm should accept is $______

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