Question

1. NPV: Project L costs $55,000, its expected cash inflows are $12,000 per year for 7 years, and its WACC is 10%. What is the project's payback? Round your answer to two decimal places.

2.IRR: Project L costs $72,976.35, its expected cash inflows are $14,000 per year for 11 years, and its WACC is 12%. What is the project's IRR? Round your answer to two decimal places.

3. PAYBACK PERIOD: Project L cOSTS $60,000, its expected cash inflows are $13,000 per year for 10 years, and its WACC is 11%. What is the project's payback? Round your answer to two decimal places _______ Years

4. DISCOUNTED PAYBACK: Project L costs $45,000, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 8%. What is the project's discounted payback. Round your answer to two decimal places. _______ years

Answer 1

1. Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

= 4 + (7000/12000)

= 4.58 years

Answer: 4.58 years

Note:

Year	Investment	Cash Inflow	Net Cash Flow
0	-55,000.00	-	-55,000.00	(Investment + Cash Inflow)
1	-	12,000.00	-43,000.00	(Net Cash Flow + Cash Inflow)
2	-	12,000.00	-31,000.00	(Net Cash Flow + Cash Inflow)
3	-	12,000.00	-19,000.00	(Net Cash Flow + Cash Inflow)
4	-	12,000.00	-7,000.00	(Net Cash Flow + Cash Inflow)
5	-	12,000.00	5,000.00	(Net Cash Flow + Cash Inflow)
6	-	12,000.00	17,000.00	(Net Cash Flow + Cash Inflow)
7	-	12,000.00	29,000.00	(Net Cash Flow + Cash Inflow)

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2.

Let the IRR be x.

Now , Present Value of Cash Outflows=Present Value of Cash Inflows

72,976.35 = 14000/(1.0x) +14000/ (1.0x)^2 +14000/(1.0x)^3+ .............+14000/(1.0x)^11   

Or x= 15.10%

Hence the IRR is 15.10%

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3. Payback Period = ( Last Year with a Negative Cash Flow ) + [( Absolute Value of negative Cash Flow in that year)/ Total Cash Flow in the following year)]

= 4 + (8000/13000)

= 4.62 years

Answer : 4.62 years

Note:

Year	Investment	Cash Inflow	Net Cash Flow
0	-60,000.00	-	-60,000.00	(Investment + Cash Inflow)
1	-	13,000.00	-47,000.00	(Net Cash Flow + Cash Inflow)
2	-	13,000.00	-34,000.00	(Net Cash Flow + Cash Inflow)
3	-	13,000.00	-21,000.00	(Net Cash Flow + Cash Inflow)
4	-	13,000.00	-8,000.00	(Net Cash Flow + Cash Inflow)
5	-	13,000.00	5,000.00	(Net Cash Flow + Cash Inflow)
6	-	13,000.00	18,000.00	(Net Cash Flow + Cash Inflow)
7	-	13,000.00	31,000.00	(Net Cash Flow + Cash Inflow)
8	-	13,000.00	44,000.00	(Net Cash Flow + Cash Inflow)
9	-	13,000.00	57,000.00	(Net Cash Flow + Cash Inflow)
10	-	13,000.00	70,000.00	(Net Cash Flow + Cash Inflow)

4.

Discounted Payback Period =

( Last Year with a Negative Cumulative Cash Flow ) + [( Absolute Value of negative Cumulative Cash Flow in that year)/ Total Present Cash Flow in the following year)]

= 5+ (1,080.18959214107/ 6,931.865895714)

= 5.16 Years

Answer : 5.16 years

	Cash Flow	Discounting Factor ( 8%)	Present Value (Cash Flow * Discounting Factor)	Cumulative Cash Flow (Present Value of Current Year+ Cumulative Cash Flow of Previous Year)
0	-45,000	1	-45,000.00	-45,000.00000000000
1	11,000	0.925925925926	10,185.185185185	-34,814.81481481480
2	11,000	0.857338820302	9,430.727023320	-25,384.08779149520
3	11,000	0.793832241020	8,732.154651222	-16,651.93314027330
4	11,000	0.735029852796	8,085.328380761	-8,566.60475951235
5	11,000	0.680583197034	7,486.415167371	-1,080.18959214107
6	11,000	0.630169626883	6,931.865895714	5,851.67630357308
7	11,000	0.583490395262	6,418.394347883	12,270.07065145660
8	11,000	0.540268884502	5,942.957729522	18,213.02838097830