Question

Please use the payback period analysis technique to analyze the cost and benefits of this project. With discount factor of 10%, the project will recover the investment in year three. please provide the numbers in the table.

Cash Flow	Year 0	Year 1	Year 2	Year 3	Year 4
Cost 1	10,000
Cost 2	5000
Discount factor 10%
Total costs	15000
Benefit 1
Benefit 2
Total Benefits
Present Value Total Costs
Present Value Total Benefits
NPV (PV benefits- PV costs)

Answer 1

Payback period= 3 Years, it means cost will be recoved in three years As question is showing four years, so we assume life of the project is four years We also assume that all the four years, project have uniform benefit Benefit 1=10000/3 Benefit 2=5000/3 Cash Flow Year 0 Year 1 Year 2 Year 3 Year 4 Total Cost 1 10,000 Cost 2          5,000.0 Discount factor 10%=1/(1+10%)^n         1.00000        0.90909        0.82645        0.75131        0.68301 Total costs           15,000 Benefit 1            3,333            3,333            3,333            3,333 Benefit 2            1,667            1,667            1,667            1,667 Total Benefits            5,000            5,000            5,000            5,000 Calculation of PV of Benefits 15000*1.000 Present Value Total Costs           15,000          15,000 Calculation of PV of Cost 5000*.90909 5000*.82645 5000*.75131 5000*.68301 Present Value Total Benefits                  -              4,545            4,132            3,757            3,415          15,849 NPV (PV benefits- PV costs) +849(15849-15000)