Question

1. Consider the statements below and solve

a. A project has an initial cost of $35,000, expected net cash inflows of $8,000 per year for 7 years, and a cost of capital of 11%. What is the project's discounted payback period? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.

b. A project has an initial cost of $65,000, expected net cash inflows of $13,000 per year for 8 years, and a cost of capital of 12%. What is the project's payback period? Round your answer to two decimal places.

c. A project has an initial cost of $55,000, expected net cash inflows of $11,000 per year for 9 years, and a cost of capital of 8%. What is the project's PI? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.

d. A project has an initial cost of $55,000, expected net cash inflows of $11,000 per year for 8 years, and a cost of capital of 8%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent.

$ __

Answer 1

Calculation of discounted payback period :
Discounted PBP
Time	Amount	PVf	PV	Cumulative
-	(35,000.00)	1.0000	(35,000.00)	(35,000.00)
1.00	8,000.00	0.9009	7,207.21	(27,792.79)
2.00	8,000.00	0.8116	6,492.98	(21,299.81)
3.00	8,000.00	0.7312	5,849.53	(15,450.28)
4.00	8,000.00	0.6587	5,269.85	(10,180.43)
5.00	8,000.00	0.5935	4,747.61	(5,432.82)
6.00	8,000.00	0.5346	4,277.13	(1,155.70)
7.00	8,000.00	0.4817	3,853.27	2,697.57
PBP = 6+1155.70/3853.27
PBP = 6+0.30= 6.30
Discounted payback period is 6.30 years
b) Calculation of pay back period
Time	Amount	Cumulative
-	(65,000.00)	(65,000.00)
1.00	13,000.00	(52,000.00)
2.00	13,000.00	(39,000.00)
3.00	13,000.00	(26,000.00)
4.00	13,000.00	(13,000.00)
5.00	13,000.00	-
6.00	13,000.00	13,000.00
7.00	13,000.00	26,000.00
8.00	13,000.00	39,000.00
Payback period= 5
Payback period is 5 years
c) Calculation of PI:
Statement showing Cash flows
Particulars	Time	PVf 8%	Amount	PV
Cash Flows	1.00	0.9259	11,000.00	10,185.19
Cash Flows	2.00	0.8573	11,000.00	9,430.73
Cash Flows	3.00	0.7938	11,000.00	8,732.15
Cash Flows	4.00	0.7350	11,000.00	8,085.33
Cash Flows	5.00	0.6806	11,000.00	7,486.42
Cash Flows	6.00	0.6302	11,000.00	6,931.87
Cash Flows	7.00	0.5835	11,000.00	6,418.39
Cash Flows	8.00	0.5403	11,000.00	5,942.96
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