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Serkin Corporation Serkin Corporation is considering an investment in a new product line

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Serkin Corporation

Serkin Corporation is considering an investment in a new product line. The investment would require an immediate outlay of $100,000 for equipment and an immediate investment of $200,000 in working capital. The investment is expected to generate a net cash inflow of $100,000 in year 1, $150,000 in year 2, and $200,000 in years 3 and 4. The equipment would be scrapped (for no salvage) at the end of the fourth year and the working capital would be liquidated. The equipment would be fully depreciated by the straight-line method over its four-year life.

1. Refer to Serkin Corporation. If Serkin uses a discount rate of 16 percent, what is the NPV of the proposed product line investment?
2. Refer to Serkin Corporation. What is the payback period for the investment?