Question

Capital Budgeting Decisions

Chee Company has gathered the following data on a proposed investment project:

Investment required in equipment ............. $240,000

Annual cash inflows .................................. $50,000

Salvage value ............................................ $0

Life of the investment ............................... 8 years

Required rate of return .............................. 10%

Assets will be depreciated using straight

line depreciation method

Required:

Using the net present value and the internal rate of return methods, is this a good investment?