Question

Brawn Industries is considering an investment project that has the following cash flows:

YEAR        CASH FLOW
   0                -1,000
   1                    400
   2    300
   3                    500
   4    400

The company's WACC is 10%.
What is the projects regular payback, IRR, and NPV? (You must show your work)

Group of answer choices

Answer 1

Project
Year	Cash flow stream	Cumulative cash flow
0	-1000	-1000
1	400	-600
2	300	-300
3	500	200
4	400	600
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 2 and 3
therefore by interpolation payback period = 2 + (0-(-300))/(200-(-300))
2.6 Years
Project
IRR is the rate at which NPV =0
IRR	0.212249384
Year	0	1	2	3	4
Cash flow stream	-1000	400	300	500	400
Discounting factor	1	1.212249	1.469549	1.781459	2.159573
Discounted cash flows project	-1000	329.9651	204.1443	280.6688	185.2218
NPV = Sum of discounted cash flows
NPV Project =	1.38284E-06
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	21.22%
Project
Discount rate	0.1
Year	0	1	2	3	4
Cash flow stream	-1000	400	300	500	400
Discounting factor	1	1.1	1.21	1.331	1.4641
Discounted cash flows project	-1000	363.6364	247.9339	375.6574	273.20538
NPV = Sum of discounted cash flows
NPV Project =	260.43
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor