A Company Is Considering a Proposal to Invest $30,000 in a Project

question 114

Essay

A company is considering a proposal to invest $30,000 in a project that would provide the following net cash flows: $$\begin{array} { l r } \text { Year 1 } & \$ 6,500 \\\text { Year 2 } & 10,700 \\\text { Year 3 } & 15,000 \\\text { Year 4 } & 12,800\end{array}$$
(a) Compute the project's payback period.
(b) Compute the net present value of the project assuming a 10% discount rate with the following factors: PV factors for $1(yr 1: 0.9091; yr 2: 0.8264; yr 3:0 .7513; yr 4: 0.6830)
(c) Should the company invest in the machine? Why or why not?

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Definitions:

Credit Sales

Sales made by a business that do not require immediate payment, but rather are paid for by the buyer at a later date.

Analysis of Receivables Method

A technique used in accounting to estimate the amount of receivables that will likely remain uncollectable.

Uncollectible Receivables

These are amounts due to a company from its customers that are considered unlikely to be collected.

Adjusting Entry

An accounting entry made at the end of an accounting period to record unrecognized income or expenses to ensure that the accounting records are accurate.