1. Consider the Following 10-year project: Year Cash Flow 0 -30000 1 2500 2 5000 3...

1.

Consider the Following 10-year project:
Year	Cash Flow
0	-30000
1	2500
2	5000
3	6750
4	7000
5	7250
6	6000
7	6250
8	8000
9	3750
10	2000

Complete the following questions on excel:

What is the Payback Period for the project?
What is the Discounted Payback Period for the project at 12% required rate of return?
What is the NPV of the project if the required rate of return is 12%
What is the PI of the project?
What is the IRR of the project?

Expert Solution

Project
Year	Cash flow stream	Cumulative cash flow
0	-30000	-30000
1	2500	-27500
2	50000	22500
3	6750	29250
4	7000	36250
5	7250	43500
6	6000	49500
7	6250	55750
8	8000	63750
9	3750	67500
10	2000	69500

Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 1 and 2
therefore by interpolation payback period = 1 + (0-(-27500))/(22500-(-27500))
1.55 Years




Project			Discount rate=	0.12
Year	Cash flow stream	Cumulative cash flow	Discounting factor	Discounted CF	Cumulative cash flow	Cumulative discounted CF
0	-30000	-30000	1	-30000	-30000	-30000
1	2500	-27500	1.12	2232.143	-27500	-27767.9
2	50000	22500	1.2544	39859.69	22500	12091.84
3	6750	29250	1.404928	4804.517	29250	16896.35
4	7000	36250	1.573519	4448.627	36250	21344.98
5	7250	43500	1.762342	4113.845	43500	25458.82
6	600000.00%	49500	1.973823	3039.787	49500	28498.61
7	6250	55750	2.210681	2827.183	55750	31325.79
8	8000	63750	2.475963	3231.066	63750	34556.86
9	3750	67500	2.773079	1352.288	67500	35909.15
10	2000	69500	3.105848	643.9465	69500	36553.09
Discounted payback period is the time by which discounted cashflow cover the intial investment outlay
this is happening between year 1 and 2
therefore by interpolation payback period = 1 + (0-(-27767.86))/(12091.84-(-27767.86))
1.7 Years

Where
Discounting factor =(1 + discount rate)^(corresponding year)
Discounted Cashflow=Cash flow stream/discounting factor

jeff jeffy answered 1 year ago

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