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Project A has the following Cash Flows: Cost = $1,200,000; Cash flows the following years as...

Project A has the following Cash Flows: Cost = $1,200,000; Cash flows the following years as follows: Year 1 = $274,600; Year 2 = $298,000; Year 3 = $303,950; Year 4 = $312,875; and Year 5 = $374,600. Calculate the Traditional Payback. Assume cash flows are even throughout the year. Calculate the Net Present Value using the WACC = 8.28%.

Solutions

Expert Solution

PAYBACK = 4.03 years

Year Cash Flow Cumulative Cash Flow
0 -1200000 -1200000
1 274600 -9,25,400
2 298000 -6,27,400
3 303950 -3,23,450
4 312875 -10,575
5 374600 3,64,025
TOTAL 364025
Payback Period = 4 YEAR + 10575/374600
4.03 YEARS

NPV = $ 26457.56

Year Project Cash Flows (i) DF@ 8.28% DF@ 8.28% (ii) PV of Project ( (i) * (ii) )
0 -1200000 1 1                    (12,00,000.00)
1 274600 1/((1+8.28%)^1) 0.923532                         2,53,601.77
2 298000 1/((1+8.28%)^2) 0.852911                         2,54,167.36
3 303950 1/((1+8.28%)^3) 0.787690                         2,39,418.34
4 312875 1/((1+8.28%)^4) 0.727456                         2,27,602.94
5 374600 1/((1+8.28%)^5) 0.671829                         2,51,667.15
NPV                             26,457.56

jeff jeffy answered 1 year ago
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