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

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

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

the project's PI

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

=2.23

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 1 year ago

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

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