acct 505 capital budgeting course b clark paints 495907

The proposed project should be accepted as its Net present value is positive at $33040, which means the present value of cash inflows from the investment is higher than the present value of investment. A positive net present value means that the project’s return exceeds the discount rate. Further the payback period of the project is 3.43 years. It means the amount invested in the project with a life of 5 years, will be recovered out of cash flows from it in 3.43 years.

The Internal rate of return of the project is 17.99%, which is higher than the required rate of return of Clarks Paints. The internal rate of return (IRR) is the rate of return promised by an investment project over its useful life. The IRR is the discount rate that makes the present value of the cash inflows equal to the present value of the cash outflows. If the internal rate of return is equal to or greater than the required rate of return (or cost of capital), then the project is acceptable.

Based on above discussion it is suggested that the project should be accepted.