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NELMA Corporation has provided the following data concerning a proposed investment project: Initial investment $320,000 Inventories...

NELMA Corporation has provided the following data concerning a proposed investment project: Initial investment $320,000 Inventories and Working Capital $14,000 Life of the project 5 years Annual Cash Inflows $100,000 Annual Operating Cash Expenses $12,000 Salvage value $44,000 The company has paid $55,000 for the market study that provided all above expectations. The company uses a discount rate of 11%. Required: a. Compute the Net present value (NPV) and decide if the project is worth accepting? b. Compute the Profitability Index (PI) of the project. Explain c. What is the maximum amount NELMA Corporation can invest on this project? d. Payback Period, NPV, and Profitability Index are three alternative methods for evaluating capital budgeting projects. What are the advantages and disadvantages of each method? e. Explain three difficulties associated with using discounted cash flow analysis in capital budgeting decisions.

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ekkarill92 answered 2 years ago
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