Question

In: Finance

You are considering a project with an initial cash outlay of ​$70,000 and expected free cash...

You are considering a project with an initial cash outlay of ​$70,000 and expected free cash flows of ​$28,000 at the end of each year for 7 years. The required rate of return for this project is 6 percent.

a. What is the​ project's payback​ period?

b. What is the​ project's NPV​?

c. What is the​ project's PI​?

d. What is the​ project's IRR​?

Solutions

Expert Solution

a.

the​ project's payback​ period=70000/28000=2.50 years

b.

the​ project's NPV​=-70000+28000*((1-(1+6%)^(-7))/6%)=86306.68

c.

the​ project's PI

=(28000*((1-(1+6%)^(-7))/6%))/70000

=2.23

d.

the​ project's IRR​

IRR is a rate when NPV=0

-70000+28000*((1-(1+IRR)^(-7))/IRR)=0

USE trial and error method to find IRR so that both sides are equal

after trying many times we get IRR=35.14%

jeff jeffy answered 2 years ago
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