Question

2. You have recently won some money playing bingo and are in a dilemma of what you do with the money. Being the savvy finance person that you are, you decide to invest. You begin to are consider a project with an initial cash outlay of $80,000 and expected cash flows of $20,000 at the end of each year for 6 years. The required rate of return for each project is 10 percent. A) What is the projects payback period? B) What is the project's NPV? C) What is the project's Pl? D) What is the project's IRR?

Answer 1

SOLUTION GIVEN: Cash outflow - (80,000) Cash inflow from 1 to 6 year = 20,000 Per year Cast of Capital = 10% Year Cash How 180,000 20.000 20,000 20,000 20. ovo 20,000 to 20,000 s Commulative cash flow (89cco) (60,000) (yoooo) (20,000) 6 20,000 hoo noooo. Payback perued = full year until recovery & unrecovered cast at the beginning of last year. I Cash How during last year. 2 что | Чухла )

b) Find NPU bon - GIVEN - Cash Outflow ((o)=(80,000) Cash sunflow for year I to 6 = 20,000 per RO Required return = 10% year عمده التليعلم المتن و - Input : lo = -80,ovo C = 20,000 Frequency: I = 10%. NPV = Compute. - We get, NPV = 187, 105,211 c) Find Profitability Index I PI= PV of future Cash flows Initial Investment » Initial Investment + NPV . Initial Investment = 80,00ot 7,105.21 80, coo - 87 105.21 = 11.089 / So, ovo

PAGE NO d) Find IRR - We are financial Calculator to find IRR Inputs: Lo = -80,00 c, = 20,000 Frequency - 6 - IRR= Compute We get, IRR = 112.98%)
All the techniques used above are the techniques of capital budgeting which is used to evaluate projects, whether it should be chosen or not.