Question

no 3! need the working according to formula! not excel sheet.

2) Which of the following statements is MOST correct? A) It a project's internal rate of return (IRR) exceeds the required return, then the project's net present value (NPV) must be negative. B) If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. (C) The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the TRR. D) A project with a NPV = 0 is not acceptable. 3) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 8%. What is the payback period of this project? A) 4.00 years B) 3.09 years C) 2.91 years D) 2.50 years A no need to ulehent 4) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 89 What is the net present value of this project? A) $104,089 150 + sopo 132500 B) $100,328 C) $96,320 170 17.03 D) $87,417 $104084.4

Answer 1

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Important Note: As per the comment mentioned on the top of the question (image), only question no. 3 has been answered and no. 2 and no.4 have not been answered. Solution 3: The initial outflow is $7,50,000 and the given inflows are $3,50,000 in year 1, $325,000 in year 2, $150,000 in year 3, and $180,000 in year 4. Payback period means the period in which the initial investment of a project is recouped by the investor. To calculate the payback period, we need to calculate the combined cash inflows of various years and payback period would lie between the combination of years where the combined cash inflows exceeded the initial outflow and the year prior to it. Now, the combined inflows of year 1 & 2 are $675,000 (i.e. $350,000+$325,000) and combined inflows of year 1, 2 & 3 are $8,25,000 (i.e. $350,000+$325,000+$150,000). Therefore, the payback period lies between year 2 and year 3. Having identified above, the payback period is calculated as below: Total cash inflow in year 3 = $150,000 Cash inflow required in year 3 to recoup initial investment = (Initial investment - Combined inflow of year 1 & year 2) = ($750,000-$350,000-$325,000) = $75,000 Payback period = First 2 years + (Cash inflow required in year 3 to recoup initial investment)/(total inflow in year 3) Payback period = 2 + ($75,000/$150,000) Payback period = 2.5 years Therefore, the payback period is 2.5 years and the correct option is D