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Question 6 Sylvan Forests Ltd is analysing a new paper product with the following after-tax cash...

Question 6

Sylvan Forests Ltd is analysing a new paper product with the following after-tax cash flows:

YEAR

CASH FLOW

0

-200,000

1

60,000

2

64,000

3

64,000

4

68,000

5

68,000

Sylvan Forests require a return of 15% on projects with this level of risk.

  1. What is the payback period for this project?
  2. What is the net present value of this project?
  3. Sylvan Forests’ CFO says he believes the IRR of this project is either 14.03% or 18.12%. Without doing any computations, which is more likely to be correct and why? (1 mark)
  4. Prove your answer to part c – show all computations (or calculator inputs).
  5. Should Sylvan Forests Ltd proceed with this project? Clearly state the criteria you used to make this decision.

(15 marks total)

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Expert Solution

jeff jeffy answered 7 months ago
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