A capital project would require an immediate investment of $150,000 and a further investment of $40,000 on a date four years from now. On the operating side, the project is expected to lose $30,000 in the first year and $10,000 in the second, to break even in the third year, and to turn annual profits of $70,000 in Years 4 to 7 and $40,000 in Years 8 to 10. The estimated residual value at the end of the 10^th year is $50,000. Is the project acceptable if a return on investment of 15% is required?

Question

Quizplus · Accepted Answer

The Answer of A capital project would require an immediate investment of $150,000 and a further investment of $40,000 on a date four years from now. On the operating side, the project is expected to lose $30,000 in the first year and $10,000 in the second, to break even in the third year, and to turn annual profits of $70,000 in Years 4 to 7 and $40,000 in Years 8 to 10. The estimated residual value at the end of the 10^th year is $50,000. Is the project acceptable if a return on investment of 15% is required?

A Capital Project Would Require an Immediate Investment of $150,000