Question

Project L costs $45,414.75, its expected cash inflows are $11,000 per year for 8 years, and its WACC is 11%. What is the project's IRR? Round your answer to two decimal places.

____%

Project L costs $75,000, its expected cash inflows are $13,000 per year for 9 years, and its WACC is 9%. What is the project's payback? Round your answer to two decimal places.

____ years

Project L costs $40,000, its expected cash inflows are $9,000 per year for 8 years, and its WACC is 11%. What is the project's discounted payback? Round your answer to two decimal places.

____ years

Answer 1

Project
IRR is the rate at which NPV =0
IRR	17.60%
Year	0	1	2	3	4	5	6	7	8
Cash flow stream	-45414.750	11000.000	11000.000	11000.000	11000.000	11000.000	11000.000	11000.000	11000.000
Discounting factor	1.000	1.176	1.383	1.626	1.913	2.249	2.645	3.111	3.658
Discounted cash flows project	-45414.750	9353.742	7953.862	6763.488	5751.266	4890.532	4158.616	3536.238	3007.005
NPV = Sum of discounted cash flows
NPV Project =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	17.60%

Year	Cash flow stream	Cumulative cash flow
0	-75000	-75000
1	13000	-62000
2	13000	-49000
3	13000	-36000
4	13000	-23000
5	13000	-10000
6	13000	3000
7	13000	16000
8	13000	29000
9	13000	42000

Payback period is the time by which undiscounted cashflow cover the intial investment outlay

this is happening between year 5 and 6

therefore by interpolation payback period = 5 + (0-(-10000))/(3000-(-10000))

5.77 Years

Year	Cash flow stream	Cumulative cash flow	Discounting factor	Discounted cash flows project
0	-40000	-40000	1	-40000
1	9000	-31000	1.11	8108.108108
2	9000	-22000	1.2321	7304.601899
3	9000	-13000	1.367631	6580.722432
4	9000	-4000	1.51807041	5928.578767
5	9000	5000	1.685058155	5341.061953
6	9000	14000	1.870414552	4811.767525
7	9000	23000	2.076160153	4334.925698
8	9000	32000	2.30453777	3905.338467

Discounted payback period is the time by which discounted cashflow cover the intial investment outlay

this is happening between year 6 and 7

therefore by interpolation payback period = 6 + (0-(-1925.16))/(2409.77-(-1925.16))

6.44 Years

Where

Discounting factor =(1 + discount rate)^(corresponding year)

Discounted Cashflow=Cash flow stream/discounting factor