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Water Planet is considering purchasing a water park

Price: $3.99


P21-27A Using payback, rate of return, discounted cash flow models, and
profitability index to make capital investment decisions [20–30 min]

Water Planet is considering purchasing a water park in Atlanta, Georgia, for
$1,870,000. The new facility will generate annual net cash inflows of $460,000 for
eight years. Engineers estimate that the facility will remain useful for eight years and
have no residual value. The company uses straight-line depreciation, and its stockholders
demand an annual return of 10% on investments of this nature.

Requirements
1. Compute the payback period, the ROR, the NPV, the IRR, and the profitability
index of this investment.
2. Recommend whether the company should invest in this project.

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