Question

  

			Years
	0	1	2	3		4
Investment Outlay
Equipment cost	($350,000)
Shipping and installation	($70,000)
Increase in inventory	($55,000)
Increase in accounts payable	$18,000
Total initial investment	($457,000)
Operating cash flow		$        113,990	$           96,350	$        140,450		$        152,210
Total termination cash flow						$           53,250
Project Cash Flows
Net cash flows	($457,000)	$113,990	$96,350	$140,450		$205,460
Required return (used as the discount rate)	12%
Payback period	(2.22)
Present value of net cash inflows
Present value of cash outflows
Profitability index
Internal rate of return (IRR)
Net present value (NPV)

Answer 1

Formula	Year (n)	0	1	2	3	4
	Net cash flows (NCF)	(4,57,000)	1,13,990	96,350	1,40,450	2,05,460
1/(1+d)^n	Discount factor @ 12%	1.000	0.893	0.797	0.712	0.636
(NCF*Discount factor)	PV of NCF	(4,57,000.00)	1,01,776.79	76,809.63	99,969.54	1,30,573.54
Sum of all PVs	NPV	(47,870.50)
Using IRR function	IRR	7.44%
(NPV-Initial investment)/Initial investment	Profitability Index	0.90

	Year (n)	0	1	2	3	4
	NCF	(4,57,000)	1,13,990	96,350	1,40,450	2,05,460
NCFn + CNCFn-1	Cumulative NCF (CNCF)	(4,57,000)	(3,43,010)	(2,46,660)	(1,06,210)	99,250
CNCF3/NCF4	Fraction of year 4					0.52
(3+Fraction of year 4)	Payback period (in years)	3.52