Question

1. Assume the following cash flows for a convenience store project you are considering, the initial outflow is $660,000 followed by ten operating cash flows $123,550 in years 1 to 10. You will also receive a terminal cash flow of $438,500 also at year 10.

Compute the IRR of the project given an interest rate of x (written as a decimal). Enter your answer as a decimal.

2. Assume the following cash flows for a convenience store project you are considering, the initial outflow is $657,338 followed by ten operating cash flows $123,550 in years 1 to 10. You will also receive a terminal cash flow of $438,500 also at year 10.

Compute the Payback of the project given an interest rate of 12%.

Answer 1

1. IRR is found using excel function with cash flows as the input

IRR of the project is 17.24%

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2. Payback period = The year in which the cuamulative cash flow was last negative + (the positive value of the cumulative cash flow in that year) / (cash flow in the next year)

Payback period = 5 + 39,588/123,550

Payback period = 5.3204208822 Years

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