Question

Given the following information about the cash flows of a project that lasts for 6 years, answer the next 3 questions. The initial outlay is $100,000 , incremental cash flows for the next 6 years are $20,000 , $30,000 , $40,000 , $40,000 , $70,000 , $70,000. The discount rate is 13%.

1. What is the pay back period of the project?

2. What is the NPV of the project?

3. What is the IRR of the project?

Answer 1

1)	Payback Period		3.25
Working:
	Payback Period is the time within which cost of project is recovered back.
	Year	Cash flow	Cumulative Cash flow
	0	$       -1,00,000	$ -1,00,000
	1	20,000	-80,000
	2	30,000	-50,000
	3	40,000	-10,000
	4	40,000	30,000
	5	70,000	1,00,000
	6	70,000	1,70,000
	Payback	=	3+(10000/40000)
		=	3.25
2)	NPV	$       65,063.76
Working:
	Year	Cash flow	Discount factor	Present Value
	a	b	c=1.13^-a	d=b*c
	0	$       -1,00,000	1.0000	$ -1,00,000.00
	1	20,000	0.8850	17,699.12
	2	30,000	0.7831	23,494.40
	3	40,000	0.6931	27,722.01
	4	40,000	0.6133	24,532.75
	5	70,000	0.5428	37,993.20
	6	70,000	0.4803	33,622.30
		NPV		$       65,063.76
3)	IRR	29.51%
Working:
	Year	Cash flow
	0	$       -1,00,000
	1	20,000
	2	30,000
	3	40,000
	4	40,000
	5	70,000
	6	70,000
	IRR	=irr(C38:C44)	C38:C44 is the	range of cash flow	from year 0	to year 6.
		29.51%