Question

Compute the payback period, Internal Rate of Return and Net. Present Value. Assume a Discount Rate of 4%, Ivt. in Project is $1,500,000 Year Return ($) 1 300k 2 500k 3 400k 4 300k 5 200k 6 100k

Answer 1

Computation of NPV
Detail	Amount (1) (in $000)	PVF @4% (2)	Time	PV (1*2) (in $ 000)
Cash Inflow	300	0.94	1	283.02
	500	0.89	2	445.00
	400	0.84	3	335.85
	300	0.79	4	237.63
	200	0.75	5	149.45
	100	0.70	6	70.50
Present Value of Cahs inflow (A)	1800			1521.4406
Present value of Cash outflow (B)	1500			1500
NPV (A-B)				21.440589
Computation of Payback period
Detail	Year	Amount (1) (in $000)	Cummulative amount ( in $000)
Inflow	1	300	300
	2	500	800
	3	400	1200
	4	300	1500
	5	200	1700
	6	100	1800
Net Investment		1500
Payback period will be 4 year
Computation of NPV
Detail	Amount (1) (in $000)	Time	PVF @4% (2)	PV (1*2) (in $ 000)	PVF @7% (3)	PV (1*3) (in $000)
Cash Inflow	300	1	0.96	288.46	0.93	280.37
	500	2	0.92	462.28	0.87	436.72
	400	3	0.89	355.60	0.82	326.52
	300	4	0.85	256.44	0.76	228.87
	200	5	0.82	164.39	0.71	142.60
	100	6	0.79	79.03	0.67	66.63
Present Value of Cahs inflow (A)	1800			1606.1963		1,481.71
Present value of Cash outflow (B)	1500			1500		1500
NPV (A-B)				106.19632		(18.29)
IRR= Lower dicount rate               +	NPV at Lower rate	X	(Higher rate-Lower rate)
	NPV at Lower rate- NPV at Higher rate
IRR= 4%               +	106.2
	(106.20-(-18.29)
4%+	106.2	X	3%
	124.49
IRR=	6.55%