A shoe company is considering an investment project that requires an initial investment of $530,000 and returns? after-tax cash inflows of ?$88,814 per year for 10 years

Finance Nov 27, 2020

A shoe company is considering an investment project that requires an initial investment of $530,000 and returns? after-tax cash inflows of ?$88,814 per year for 10 years. The company has a maximum acceptable payback period of 8 years.

a. Determine the payback period for this project.

b. Should the company accept the? project?

Expert Solution

1.)

Initial Investment = 530000

After Tax cash inflows = 88814

Payback Period = 530000/88814

Payback Period = 5.97 years

2.)

We can see that Payback Period = 5.97 years and max. acceptable payback period of 8 years.

Payback Period 5.97 is less than Limit of payback period 8 years

So, we should accept company's project

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