Question

Answer the following questions.

A company is analyzing an independent project, S, whose cash flows are shown below:

	Year 0	Year 1	Year 2	Year 3	Year 4
Cashflow for S	-100	10	50	20	60

The company’s cost of capital is 10%, and it can get an unlimited amount of capital at that cost.  

What is the discounted payback period for Project S?

Select one:

a. 2.67 years

b. 3.66 years

c. 2.99 years

d. 3.84 years

e. 2.33 years

Continued from the previous question. What is the internal rate of return (IRR) for Project S?

Select one:

a. 15.22%

b. 12.46%

c. 20.12%

d. 10.00%

e. 18.54%

Continued from the previous question. What is the Net Present Value (NPV) of Project S?

Select one:

a. $12.340

b. $23.140

c. $ 6.420

d. $18.732

e. $13.934

Answer 1

	ans 1
	Period	Cash flow	PVIF @ 10%	Present value	Cumulative present value
	Year 0	-100	1	(100.00)	(100.00)
	Year 1	10	0.90909091	9.09	(90.91)
	Year 2	50	0.82644628	41.32	(49.59)
	Year 3	20	0.7513148	15.03	(34.56)
	Year 4	60	0.68301346	40.98	6.42
	NPV=			6.42
	Payback period = 3+34.56/40.98	3.84	Year
	answer = option d)		3.84	Year
	ans 2
	IRR using excel function =	12.46%
	answer = option b)		12.46%
	ans 3
	NPV=			6.420
	answer= option c)		6.420