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