Question

In: Finance

Payback period A) Project L costs $60,000, its expected cash inflows are $13,000 per year for...

Payback period

A) Project L costs $60,000, its expected cash inflows are $13,000 per year for 12 years, and its WACC is 9%. What is the project's payback? Round your answer to two decimal places.

B) A project has annual cash flows of $6,000 for the next 10 years and then $9,500 each year for the following 10 years. The IRR of this 20-year project is 13.03%. If the firm's WACC is 8%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

Solutions

Expert Solution

Answer A):

When annual cash flows are uniform;

Payback period = Initial investment / Annual cash flow = 60000 / 13000 = 4.62 years

Project's payback = 4.62 years

Answer B):

IRR of the project =13.03%

We know IRR is discount rate at which NPV = 0

This means, the present value of discounted cash flows at the rate of IRR will be equal to initial investment

Annual cash flows from year 1 to year 10 = $6000

Annual cash flows from year 11 to year 20 = $9500

The PV at the end of year 10 of cash flows from year 11 to 20 = 9500 * (1 - 1 / (1 + 13.03%) 10) / 13.03% = $51487.56515

PV at year 0 of 51487.57 = 51487.56515 /(1 + 13.03%)10 = $15127.42744

PV of cash flows from year 1 to year 10 = 6000 * (1 - 1 / (1 + 13.03%) 10) / 13.03% = $32518.4622

Hence Initial investment = PV of cash flow from year 1 to year 10 = 15127.42744 + 32518.4622 =$47,645.8896

NPV Calculations:

Initial investment = $47,645.8896

The PV at the end of year 10 of cash flows from year 11 to 20 = 9500 * (1 - 1 / (1 + 8%)10) / 8% = $63745.7733

PV at year 0 of 63745.7733 = 63745.7733/(1 + 8%)10 = $29526.6271

PV of cash flows from year 1 to year 10 = 6000 * (1 - 1 / (1 + 8%)10) / 8% = $40260.4884

Hence:

NPV = 29526.6271 + 40260.4884- 47645.8896 = $22,141.23

NPV = $22,141.23


Related Solutions

1. Project L costs $60,000, its expected cash inflows are $13,000 per year for 11 years,...
1. Project L costs $60,000, its expected cash inflows are $13,000 per year for 11 years, and its WACC is 14%. What is the project's NPV? 2. Project L costs $46,352.00, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 13%. What is the project's IRR? 3. Project L costs $75,000, its expected cash inflows are $14,000 per year for 8 years, and its WACC is 14%. What is the project's MIRR? 4. Project...
PAYBACK PERIOD Project L costs $55,000, its expected cash inflows are $12,000 per year for 8...
PAYBACK PERIOD Project L costs $55,000, its expected cash inflows are $12,000 per year for 8 years, and its WACC is 10%. What is the project's payback? Round your answer to two decimal places. years
PAYBACK PERIOD Project L costs $65,000, its expected cash inflows are $14,000 per year for 11...
PAYBACK PERIOD Project L costs $65,000, its expected cash inflows are $14,000 per year for 11 years, and its WACC is 9%. What is the project's payback? Round your answer to two decimal places. __ years
Project L costs $65,501.59, its expected cash inflows are $13,000 per year for 11 years, and...
Project L costs $65,501.59, its expected cash inflows are $13,000 per year for 11 years, and its WACC is 12%. What is the project's IRR? Round your answer to two decimal places.
Project L costs $62,392.42, its expected cash inflows are $13,000 per year for 11 years, and...
Project L costs $62,392.42, its expected cash inflows are $13,000 per year for 11 years, and its WACC is 13%. What is the project's IRR? Round your answer to two decimal places.
Project L costs $61,265.72, its expected cash inflows are $13,000 per year for 9 years, and...
Project L costs $61,265.72, its expected cash inflows are $13,000 per year for 9 years, and its WACC is 14%. What is the project's IRR? Round your answer to two decimal places.
Project L costs $55,000, its expected cash inflows are $13,000 per year for 10 years, and...
Project L costs $55,000, its expected cash inflows are $13,000 per year for 10 years, and its WACC is 14%. What is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project L costs $55,000, its expected cash inflows are $13,000 per year for 8 years, and...
Project L costs $55,000, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 7%. What is the project's discounted payback? Round your answer to two decimal places.
Project L costs $35,000, its expected cash inflows are $13,000 per year for 8 years, and...
Project L costs $35,000, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 10%. What is the project's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations. %
Project L costs $55,000, its expected cash inflows are $13,000 per year for 8 years, and...
Project L costs $55,000, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 7%. What is the project's discounted payback? Do not round intermediate calculations. Round your answer to two decimal places.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT