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# finance

Answered Same Day Jun 12, 2020

## Solution

Aarti J answered on Jun 13 2020
a    year    Cash flows    PVIF @ 8%    Present value
0    -100000    1    -100000
1    25000    0.9259259259    23148.1481481481
2    25000    0.8573388203    21433.4705075446
3    25000    0.793832241    19845.8060255042
4    25000    0.7350298528    18375.7463199113
5    25000    0.680583197    17014.5799258438
Net Present value =
Present value of cash flows    99817.7509269521
Less: Initial investment    -100000
NPV    -182.2490730479
Payback period =
Initial investment    100000
Divide: Cash flows    25000
Payback period =    4
Profitability index =
Present value of cash flows    99817.7509269521
Less: Initial investment    100000
Profitability index =    1.00
Accounting return =
Average net income    2710
Divide: Average book value    13550
ARR =    20.00%
b    The project should not be accepted as the NPV is negative and the payback period is more than the company's policy.