ON 4 (19 Marks) A project has an initial cost of $6,3 and $4,100 over the...

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ON 4 (19 Marks) A project has an initial cost of $6,3 and $4,100 over the next four an of the last dividend paid. b. A projec

Answer 1

Answer #1

a]	Payback period is the time taken for the cash inflows to
	recoup the initial investment.
	Year	Cash flow	Cumulative cash flow
	0	$ -6,500	$ -6,500
	1	$ 900	$ -5,600
	2	$ 2,200	$ -3,400
	3	$ 3,600	$ 200
	4	$ 4,100	$ 4,300
	Payback period = 2+3400/3600 =	2.94	Years
b]	The NPV is calculated below:
	Year	Cash flow	PVIF at 16%	PV at 16%
	0	$ -9,500	1.00000	$ -9,500.00
	1	$ 3,200	0.86207	$ 2,758.62
	2	$ 3,200	0.74316	$ 2,378.12
	3	$ 3,200	0.64066	$ 2,050.10
	4	$ 3,200	0.55229	$ 1,767.33
	5	$ 5,700	0.47611	$ 2,713.84
	NPV			$ 2,168.02

Answer 2

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