Question

1. What's the NPV of the following cash flows with a 8% WACC?

2. What's the payback period of the following cash flows with a 8% WACC?

3. What's the discounted payback period of the following cash flows with a 8% WACC?

4. What's the profitability index of the following cash flows with a 8% WACC?

Year 0 = 100,000

Year 1 = 10,000

Year 2 = 50,000

Year 3 = 45,000

Year 4 = 25,000

Answer 1

1. Calculation of NPV

NPV = Present value of cash Inflow - Present value of Cash Outflow

Year	Cash Flow	PVF @8%	PV of cash Flow
0	-100000	1	-100000
1	10000	0.926	9260
2	50000	0.857	42850
3	45000	0.794	35730
4	25000	0.735	18375
	NPV		6215

2. Calculation of Payback period

Initial Investment = 100000

Year	Cash Inflow	Cumulative Cash Inflow
1	10000	10000
2	50000	60000
3	45000	105000
4	25000	130000

Payback period = Year before Full recovery + Unrecovered cost / Cash Flow during the year

= 2 years + 40000/45000

= 2.89 years

Unrecovered Cost = Initial Investment - Cumulative cash flow at the end of 2nd year.

3. Calcuation of Discounted Payback period

Year	Cash Flow	Discounted Cash Flow (refer NPV solution in point 1)	Cumulative Discounted Cash Flow
0	-100000	-100000	-100000
1	10000	9260	-90740
2	50000	42850	-47890
3	45000	35730	-12160
4	25000	18375	6214

Discounted Payback period = 3 years + (12160 / 18375)

= 3.66 years

4. Profitability Index

= 1 + Net Present value (NPV) / Initial Investment

= 1 + 6215 / 100000

= 1.062