Question

udicates problems in Excel Study Problems All Study Problems are available in MyLab Finance. The X icon indicates problems Mylab format available in MyLab Finance. LO2 10-1. (Payback Period) What is the payback period for the following set of cash flowe YEAR CASH FLOWS --- $11,300 3,400 4,300 3,600 4,500 3,500 x 10-2. (IRR calculation) Determine the IRR on the following projects: a. An initial outlay of $10,000 resulting in a single free cash flow of $17,182 after 8 years b. An initial outlay of $10,000 resulting in a single free cash flow of $48,077 after 10 years c. An initial outlay of $10,000 resulting in a single free cash flow of $114,943 after 20 years d. An initial outlay of $10,000 resulting in a single free cash flow of $13,680 after 3 years 10-3. (IRR calculation) Determine the IRR on the following projects: a. An initial outlay of $10,000 resulting in a free cash flow of $1,993 at the end of each year for the next 10 years b. An initial outlay of $10,000 resulting in a free cash flow of $2,054 at the end of each year for the next 20 years c. An initial outlay of $10,000 resulting in a free cash flow of $1,193 at the end of each year for the next 12 years d. An initial outlay of $10,000 resulting in a free cash flow of $2,843 at the end of each year for the next 5 years 10-4. (IRR calculation) Determine to the nearest percent the IRR on the following project a. An initial outlay of $10,000 resulting in a free cash flow of $2,000 at the end year 1, $5,000 at the end of year 2, and $8,000 at the end of year 3 b. An initial outlay of $10,000 resulting in a free cash flow of $8,000 at the end year 1, $5,000 at the end of year 2, and $2,000 at the end of year 3 c. An initial outlay of $10,000 resulting in a free cash flow of $2,000 at the years 1 through 5 and $5,000 at the end of year 6 at the end of 00 at the end of m 20 * 10-5. (NPV, PI, and IRR calculations) Fijisawa Inc. is considering a major expans its product line and has estimated the following free cash flows associated wiu expansion of ated with such

Answer 1

10-1

Payback period it the time taken to recover the initial investment:

Year	Opening Balance	Investment	CF	Closing Balance
1		$         11,300.00		$         11,300.00
2	$            11,300.00		$                     3,400.00	$           7,900.00
3	$              7,900.00		$                     4,300.00	$           3,600.00
4	$              3,600.00		$                     3,600.00	$                        -

• Opening balance = previous year's closing balance
• Closing balance = Opening balance+Investment-CF
• So we can see that at the beginning of year 4 the opening balance is 3600 and the CF during the year is also 3600 and therefore that is recovered by the end of 4rth year so the payback period is 4 years

10-2

We are given the following information:

Particular	Part a	Part b	Part c	Part d
PV	10000	10000	10000	10000
n	8	10	20	3
frequency	1	1	1	1
FV	$17,182.00	$48,077.00	$114,943	$13,680.00

Part a:

We need to solve the following equation to arrive at the required IRR

FV = PV X (1+r)"

17182 = 10000 X (1+IRR)

IRR = 7%

Part b:

We need to solve the following equation to arrive at the required IRR

FV = PV X (1+r)"

48077 = 10000 X (1+IRR)0

IRR = 17%

Part c:

We need to solve the following equation to arrive at the required IRR

FV = PV X (1+r)"

114943 = 10000 X (1+IRR)20

IRR = 12.99%

Part d:

We need to solve the following equation to arrive at the required IRR

FV = PV X (1+r)"

13680 = 10000 X (1+IRR)

IRR = 11.01%