Question
In: Finance
Apple Inc. is evaluating Project Vanguard with the following cash flows:
Apple Inc. is evaluating Project Vanguard with the following cash flows:
|
Year |
0 |
1 |
2 |
3 |
4 |
|
Cash Flow ($m) |
-80 |
10 |
20 |
35 |
40 |
(i) Use the payback rule to determine whether the company should accept the project or not if its payback period cutoff is 4 years.
(ii) Use the IRR rule to determine whether the company should accept the project or not if its cost of capital is 10%.
(iii) Use the NPV rule to determine whether the company should accept the project or not if its cost of capital is 10%.
Solutions
Expert Solution
i. payback period = 3.28 years, as it is less than 4 years, we should accept the project as per this rule.
ii. IRR= 9.64%, as it is less than cost of caapital of 10% we should not accept the project.
iii. NPV= -0.76, as NPV is negative the should not accept the project.
jeff jeffy answered 2 years agoRelated Solutions
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Year
Cash Flow
0
–$
28,500
1
10,700
2
13,400
3
15,300
4
12,400
5
–
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0
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1
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13,400
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Discount Rate
0
−
0.25
7
%
0.26
−
0.50
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0.51
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0.75
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$
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19,200
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19,800
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7
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0.26
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0.50
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0.51
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0.75
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