Taskin, Muiz and Jahanara formed TMJ Corporation for supplying sports equipment. TMJ is considering a long-term capital investment and this will require an investment of Taka 2,80,000. The equipment has a useful life of 5 years. Annual net income is expected to be Taka 16,000 a year. Cash flows can be computed by adding back depreciation expense. Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 10% and discount factor for 5 payments @ 10% is 3-79079.
You are requested to :
(a) Compute the cash payback period for the project.
(b) Compute the Net Present Value (NPV).
(c) Compute the Annual Rate of Return (ARR).
(d) Should the project be accepted? Why?

Question

Taskin, Muiz and Jahanara formed TMJ Corporation for supplying sports equipment. TMJ is considering a long-term capital investment and this will require an investment of Taka 2,80,000. The equipment has a useful life of 5 years. Annual net income is expected to be Taka 16,000 a year. Cash flows can be computed by adding back depreciation expense. Depreciation is computed by the straight-line method with no salvage value. The company's cost of capital is 10% and discount factor for 5 payments @ 10% is 3-79079.

You are requested to :
(a) Compute the cash payback period for the project.
(b) Compute the Net Present Value (NPV).
(c) Compute the Annual Rate of Return (ARR).
(d) Should the project be accepted? Why?

Satt Academy · Accepted Answer

Taskin, Muiz and Jahanara formed TMJ Corporation for supplying sports equipment. TMJ is considering a long-term capital investment and this will require an investment of Taka 2,80,000. The equipment has a useful life of 5 years. Annual net income is expected to be Taka 16,000 a year. Cash flows can

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