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CAPITAL BUDGETING: QUESTION A Company is considering an investment proposal to install new milling controls. The project will cost $ 50,000 The facility has a life expectancy of 5 years and no savings value. Document Preview:

CAPITAL BUDGETING: QUESTION A Company is considering an investment proposal to install new milling controls. The project will cost $ 50,000 The facility has a life expectancy of 5 years and no savings value. The company’s tax rate is 55% and investment allowance is allowed. The firm uses straight line depreciation. The estimated cash flows before tax (CFAT) from the proposed investment proposal are as follows: Year CFBT ($) 1 10,000 2 11,000 3 14,000 4 15,000 5 25,000 Compute the following : (i) Pay back period (ii) Average rate of return (iii) Internal rate of return (iv) Net present value at 10% discount rate (v) Profitability index at 10% discount rate

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