Homework Answers
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
Hence initial outlay=(350,000+425000+(425000*0.5))=$987500
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=350,000/1.07+425000/1.07^2+425000/1.07^3+450,000/1.07^4
=$1388543.71
NPV=Present value of inflows-Present value of outflows
=$1388543.71-$987500
=$401044(Approx).
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