Homework Answers
3) Investment in working capital unlike investment in plant and equipment represent a positive cash flow
is incorrect.
Working capital is a cash outflow just like purchase of assets,plant and equipments
4)The initial investment is $90000
The below table shows the present value and Cumulative values of cash flows
| year | cash inflow | Present value factor @12% | present value of cash inflow | cumulative cash flow |
| 1 | 30000 | 0.892857143 | 26785.71429 | 26785.71429 |
| 2 | 30000 | 0.797193878 | 23915.81633 | 50701.53061 |
| 3 | 25000 | 0.711780248 | 17794.5062 | 68496.03681 |
| 4 | 25000 | 0.635518078 | 15887.95196 | 84383.98877 |
| 5 | 25000 | 0.567426856 | 14185.67139 | 98569.66016 |
The required discounted payback period would be ,
= 4 + (90000- 84383.98877) / (98569.66016 - 84383.98877)
= 4 + 5616.011/ 14185.67
= 4.3958 or 4.40 years
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