Question

Payback, NPV, and IRR Rieger International is evaluating the feasibility of investing $103,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown in the following table: B . The firm has a 9% cost of capital. a. Calculate the payback period for the proposed investment. b. Calculate the net present value (NPV) for the proposed investment. c. Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment. d. Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? a. The payback period of the proposed investment is years. (Round to two decimal places.) A Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Year (0) WN Cash inflows (CF) $25,000 $40,000 $25,000 $30,000 $35,000 Print Done

Answer 1

D9 foc =SUM(D3:D8) BC 2 year Cash flows pv@9% Present value Cumulative cash flows 0 $ (1,03,000.00) 1.0000 $ (1,03,000.00) $ (1,03,000.00) 11 $ 25,000.00 0.9174 $ 22,935.78 $ (78,000.00) $ 40,000.00 0.8417 $ 33,667.20 $ (38,000.00) 25,000.00 0.7722 $ 19,304.59 $ (13,000.00) 4 $ 30,000.00 0.7084 $ 21,252.76 $ 17,000.00 5 $ 35,000.00 0.6499 $ 22,747.60 $ 52,000.00 15% NPV $ 16,907.92 3 $ IRR Payback Period 3+13000/30000 3.43 Years Accept the Project because NPV is Positive and IRR is more than 9%

for =SUM(D3:08) pv@9% 2 year 30 4 1 52 63 74 85 9 IRR Cash flows - 103000 25000 40000 25000 30000 35000 =IRR(B3:38) =C3/1.09 =C4/1.09 C5/1.09 =C6/1.09 =C7/1.09 NPV Present value =B3*C3 =B4*04 =B5*C5 =B6*C6 =B7*C7 =B8*C8 =SUM(D3:08) Cumulative Cash flows =B3 =E3+B4 =E4+B5 =E5+B6 =E6+B7 =E7+B8 Payback Period 3+13000/30000 =3+13000/30000 Years Accept the Project because NPV is Positive