Question

A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7
years, and a cost of capital of 11%. What is the project’s NPV? (Hint: Begin by
constructing a time line.)
(10-2) Refer to Problem 10-1. What is the project’s IRR?
(10-3) Refer to Problem 10-1. What is the project’s MIRR?
(10-4) Refer to Problem 10-1. What is the project’s PI?
(10-5) Refer to Problem 10-1. What is the project’s payback period?
(10-6) Refer to Problem 10-1. What is the project’s discounted payback period?

Answer 1

1. Project's NPV

2. Project's IRR =

IRR = where NPV of the project is equal to zero

IRR = 12% + (1073.81 - 0 ) / [1073.81 - (-196.506) ]

= 12.845%

Project's PI = PV of future cash flow / Initial cash flow

= 42410 / 40000

= 1.06025

Project's payback period =

PI = 4th year + (40000 - 36000) / (45000 - 36000)

= 4.44 years

Discounted payback period =

Discounted payback period = 6th year + (40000 - 38074.84)/(42409.77 - 38074.84)

= 6.44 years