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Rieger International is attempting to evaluate the feasibility of

investing $95,000 in a piece of equipment that has a 5-year life. Management usually accepts a project which recovers it's initial investment in four years or less. The firm has estimated the cash inflows associated with the proposal as shown in the following table. The firm has a 12% cost of capital. Year (t) Cash inflows (CFt) 1 $20,000 2 25,000 3 30,000 4 35,000 5 40,000 Required: Based on your calculations of the following capital budgeting techniques you are required to evaluate the acceptability of this proposed investment. Also give justifications (reasons) of your decision. a. The payback period and discounted payback period for the proposed investment. (10 marks) b. The net present value (NPV) and Profitability index (PI) for the proposed investment. (10 marks) c. The internal rate of return (IRR) for the proposed investment.

Subject: Accounting, Business

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