Determining the payback period for project


1) Assume Palmer Properties is considering investing $2 million today (that is, C0 = -2,000,000) on the new project which is expected to last for eight years. Project is expected to make annual cash flows of C1 = -250,000; C2 = 350,000, C3 = 500,000 and then $600,000 for period C4 through C8. If the discount rate is= 10% and management’s payback period cut-off is five years:

(a) Determine the payback period for project? Illustrate your work.

(b) Compute the net present value of project? Illustrate your work

(c) What is the internal rate of return on the project? Illustrate your work

(d) Under which method(s) above must company accept project (applying the acceptance rules)? Descrribe in detail.

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Finance Basics: Determining the payback period for project
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