Generic Motors Corporation is planning to invest $200,000in year zero (today) in new equipment. This investment is expected to generate net cash flows of $80,000a year for the next 4 years (years 1-4). The salvage value after 4 years is zero. The discount rate (cost of capital) is 20% a year.
a) What is the net present value (NPV) of this project?
b) What is the payback period for this project?
payback period =
What is the accounting rate of return (ARR) for this project?
To compute ARR, first compute:
annual depreciation=$
annual income=$
average investment=$
ARR = %