Question

A project will cost $50,000 today and produce equal after tax cash flows for the next seven years (these will be the only cash flows from the project). Your discount rate is 13%. If it turns out your payback period is four years, what is the net present value of this project?  

Answer 1

Payback period is the time upto which cost of project is recovered back.
Cost of project				$       50,000
/Payback period in years				4
Annual cash flows for payback period				$       12,500
Question says that project will pay equal after tax cash flows annually.So, project will pay $ 12,500 for seven years.
Now, Net Present Value is calculated as follows:
Year	Cash flow		Discount factor		Present Value
a	b		c=1.13^-a		d=b*c
0	$ -50,000		1.0000		$ -50,000.00
1	12,500		0.8850		11,061.95
2	12,500		0.7831		9,789.33
3	12,500		0.6931		8,663.13
4	12,500		0.6133		7,666.48
5	12,500		0.5428		6,784.50
6	12,500		0.4803		6,003.98
7	12,500		0.4251		5,313.26
	Net Present Value				5,282.63