Question

17. Paybag and ex requin Fr 18. d. AD 239 CHAPTER 10 d. A project with an initial out of 5.000 rewas in a singde free cash years 13. (Payback) Determine each project's payback period: A project with an initial outlay of $10,000 results in a single free cash flow of $3.000 end of each year for 5 years b. A project with an initial outlay of $10,000 results in a single free cash flow of 5.000 end of each year for 5 years c. A project with an initial outlay of $3,000 results in a single free cash flow of $1.233ater the of each year for 5 years A project with an initial outlay of $3,000 results in a single free cash flow of $1.235 after the of each 2 years for 10 years. (Internal Rate of Return) Calculate the project's internal rate of return. a. An initial cash outflow of $.6.235 and a free cash flow of $7.125 in 5 years b. An initial cash outflow of 56.235 and a free cash flow of $7,125 in 3 years c An initial cash outflow of $6,235 and a free cash flow of $7,125 in 10 years d. An initial cash outflow of $6,235 and a free cash flow of $1,125 at the end of the next 5 years An initial cash outflow of $6,235 and a free cash flow of $1,125 at the end of the next 3 years followed by $1,025 at the end of 5 years. An initial cash outflow of $6,235 and a free cash flow of $1,125 at the end of the next 3 years, followed by $1,025 at the end of 5 years. An initial cash outflow of $6,235 followed by $1,025 at the end of 2 years and a free cash flow of $1,125 at the end of the next 3 years. 15. (Net Present Value) Calculate the project's net present value. The cost of capital is 10% Sol f. a. An initial cash outflow of $6,235 and a free cash flow of $7,125 in 5 years. b. An initial cash outflow of $6,235 and a free cash flow of $7,125 in 3 years C. An initial cash outflow of $6,235 and a free cash flow of $7,125 in 10 years d. An initial cash outflow of $6,235 and a free cash flow of $1,125 at the end of the next 5 years e. An initial cash outflow of $6,235 and a free cash flow of $1,125 at the end of the next 3 years, followed by $1,025 at the end of 5 years. f. An initial cash outflow of $6,235 and a free cash flow of $1,125 at the end of the next 3 years followed by $1,025 at the end of 5 years. g. An initial cash outflow of $6,235 followed by $1,025 at the end of 2 years and a free cash flow of $1,125 at the end of the next 3 years (Payback period, IRR, & NPV) You are considering a project with an initial cash outlay of $5,275, and expect to receive free cash flows $2,125 at the end of each year for the next 7 years. If the required rate of return is 10%, what is the firm's 1. Payback period? NPV? IRR? cwers to parts b and c)

Answer 1

13)

The payback period refers to the amount of time it takes to recover the cost of an investment. Simply put, the payback period is the length of time an investment reaches a breakeven point.

The desirability of an investment is directly related to its payback period. Shorter paybacks mean more attractive investments.

The formula to calculate the payback period of an investment depends on whether the periodic cash inflows from the project are even or uneven.

If the cash inflows are even (such as for investments in annuities), the formula to calculate payback period is:

Payback Period =	Initial Investment
	Net Cash Flow per Period

When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula:

Payback Period =	A +	B
		C

Where,
A is the last period number with a negative cumulative cash flow;
B is the absolute value (i.e. value without negative sign) of cumulative net cash flow at the end of the period A; and
C is the total cash inflow during the period following period A

Cumulative net cash flow is the sum of inflows to date, minus the initial outflow.

a)

payback period= 10000/3000= 3.334 years

b)

Payback period= 10000/8000= 1.25 years

c)

payback period= 3000/1333= 2.25056 years

d)

since the cashflows are even in 2 year periods, we can assume per year cashflows=1235/2= 617.5

payback period= 3000/617.5= 4.8583 years

Note: I'm solving only the first 4 sub parts as per the policy.