Question
In: Finance
A project has an annual cash flow of $8000 for first 10 years and $11000 for...
A project has an annual cash flow of $8000 for first 10 years and $11000 for the next 10 years, the cost of total investment was $90,000. The company’s WACC is 10% and IRR is 14%. What is the project’s payback and NPV?
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Expert Solution
NPV = PV of Cash Inflows - PV of Cash outflow
| Year | CF | PVF @10% | Disc CF |
| 0 | $ -90,000.00 | 1.0000 | $ -90,000.00 |
| 1 | $ 8,000.00 | 0.9091 | $ 7,272.73 |
| 2 | $ 8,000.00 | 0.8264 | $ 6,611.57 |
| 3 | $ 8,000.00 | 0.7513 | $ 6,010.52 |
| 4 | $ 8,000.00 | 0.6830 | $ 5,464.11 |
| 5 | $ 8,000.00 | 0.6209 | $ 4,967.37 |
| 6 | $ 8,000.00 | 0.5645 | $ 4,515.79 |
| 7 | $ 8,000.00 | 0.5132 | $ 4,105.26 |
| 8 | $ 8,000.00 | 0.4665 | $ 3,732.06 |
| 9 | $ 8,000.00 | 0.4241 | $ 3,392.78 |
| 10 | $ 8,000.00 | 0.3855 | $ 3,084.35 |
| 11 | $ 11,000.00 | 0.3505 | $ 3,855.43 |
| 12 | $ 11,000.00 | 0.3186 | $ 3,504.94 |
| 13 | $ 11,000.00 | 0.2897 | $ 3,186.31 |
| 14 | $ 11,000.00 | 0.2633 | $ 2,896.64 |
| 15 | $ 11,000.00 | 0.2394 | $ 2,633.31 |
| 16 | $ 11,000.00 | 0.2176 | $ 2,393.92 |
| 17 | $ 11,000.00 | 0.1978 | $ 2,176.29 |
| 18 | $ 11,000.00 | 0.1799 | $ 1,978.45 |
| 19 | $ 11,000.00 | 0.1635 | $ 1,798.59 |
| 20 | $ 11,000.00 | 0.1486 | $ 1,635.08 |
| NPV | $-14,784.50 | ||
Payback period is the period in which initial investment is recovered.
| Year | Opening Bal | CF | Bal To be recovered |
| 1 | $ 90,000.00 | $ 8,000.00 | $ 82,000.00 |
| 2 | $ 82,000.00 | $ 8,000.00 | $ 74,000.00 |
| 3 | $ 74,000.00 | $ 8,000.00 | $ 66,000.00 |
| 4 | $ 66,000.00 | $ 8,000.00 | $ 58,000.00 |
| 5 | $ 58,000.00 | $ 8,000.00 | $ 50,000.00 |
| 6 | $ 50,000.00 | $ 8,000.00 | $ 42,000.00 |
| 7 | $ 42,000.00 | $ 8,000.00 | $ 34,000.00 |
| 8 | $ 34,000.00 | $ 8,000.00 | $ 26,000.00 |
| 9 | $ 26,000.00 | $ 8,000.00 | $ 18,000.00 |
| 10 | $ 18,000.00 | $ 8,000.00 | $ 10,000.00 |
| 11 | $ 10,000.00 | $ 11,000.00 | $ -1,000.00 |
| 12 | $ -1,000.00 | $ 11,000.00 | $ -12,000.00 |
| 13 | $ -12,000.00 | $ 11,000.00 | $ -23,000.00 |
| 14 | $ -23,000.00 | $ 11,000.00 | $ -34,000.00 |
| 15 | $ -34,000.00 | $ 11,000.00 | $ -45,000.00 |
| 16 | $ -45,000.00 | $ 11,000.00 | $ -56,000.00 |
| 17 | $ -56,000.00 | $ 11,000.00 | $ -67,000.00 |
| 18 | $ -67,000.00 | $ 11,000.00 | $ -78,000.00 |
| 19 | $ -78,000.00 | $ 11,000.00 | $ -89,000.00 |
| 20 | $ -89,000.00 | $ 11,000.00 | $ -1,00,000.00 |
Payback period = Year in which lease +ve Bal to be recovered + [ Bal to be recovered at that year / CF of Next Year ]
= 10 + 10000 / 11000
= 10 + 0.91
= 10.91 Years
jeff jeffy answered 10 months agoRelated Solutions
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