Question

Calculate the discounted payback, net present value, and internal rate of return for the following cash flows. -60, -50, 6, 45, 60, 70, 60, 45, 20. Discount rate at 7%. Please show work for the internal rate of return calculation.

Answer 1

Answer 2

A) Discounted Payback period

Years	Cashflow	Discounted Cashflow	Cumulative Discounted cashflow
0	(60)	(60)	(60)
1	(50)	(46.73)	(106.73)
2	6	5.24	(101.49)
3	45	36.73	(64.75)
4	60	45.77	(18.98)
5	70	49.91	30.93
6	60	39.98	70.91
7	45	28.02	98.93
8	20	11.64	110.57

Discounted Payback period= full year before recovery + Cumulative Discounted cashflow in the year before full recovery/ Discounted cashflow of year after recovery

= 4 + 18.98 / 49.91

= 4 + 0.38

= 4.38 years

B) Using financial calculator to calculate the NPV

Inputs:- C0= -60

C1= -50 Frequency= 1

C2= 6 Frequency= 1

C3= 45 Frequency= 1

C4= 60 Frequency= 1

C5= 70 Frequency= 1

C6= 60 Frequency= 1

C7= 45 Frequency= 1

C8= 20 Frequency= 1

I= 7%

Npv= compute

We get, NPV as $110.57

C) Using financial calculator to calculate the IRR

Inputs:- C0= -60

C1= -50 Frequency= 1

C2= 6 Frequency= 1

C3= 45 Frequency= 1

C4= 60 Frequency= 1

C5= 70 Frequency= 1

C6= 60 Frequency= 1

C7= 45 Frequency= 1

C8= 20 Frequency= 1

Irr= compute

We get, Irr as 25.85%