Question

Assume the required rate of return is 12 percent

Year                Cash Flows

0                      - $144,000

1                      $33,000

2                      $46,000

3                      $58,000

4                      $72,000

-What is the NPV of the above cash flows

- What is the IRR

-What is the Profitability Index

-What is the payback period of the project

-What is the discounted payback period

Answer 1

fax =SUM(D3:07) B 2 year Cash flows pv@12% 0$ (1,44,000.00) 4 1 $ 33,000.00 2 $ 46,000.00 3 $ 58,000.00 4 $ 72,000.00 IRR 14.63% NPV Present value Cumulative cash flows Cumulative Discounted cash flows 1.0000 $ (1,44,000.00) $ (1,44,000.00) $ (1,44,000.00) 0.8929 $ 29,464.29 $ (1,11,000.00) $ (1,14,535.71) 0.7972$ 36,670.92 $ (65,000.00) $ (77,864.80) 0.7118 $ 41,283.25 $ (7,000.00) $ (36,581.54) 0.6355 $ 45,757.30 $ 65,000.00 $ 9,175.76 9,175.76 Payback Period 3+7000/72000 Discounted Payback 3+36581.54/45757.3 3.10 Years 3.80 Years PI 1+NPV/Initial investment 1+9175.76/144000 1.06

D8 for =SUM(D3:D7) pv@12% B 1 2 year Cash flows 30 -144000 4 1 33000 5 2 46000 63 58000 74 72000 8 IRR =IRR(B3:37) =C3/1.12 =C4/1.12 =C5/1.12 =C6/1.12 NPV Present value =B3*C3 =B4*C4 =B5*C5 =B6*C6 =B7*C7 =SUM(D3:07) Cumulative cash flows Cumulative Discounted cash flows =B3 =D3 =E3+B4 =F3+D4 =E4+B5 =F4+D5 =E5+B6 =F5+D6 =E6+B7 =F6+D7 9 10 Years Payback Period 3+7000/72000 =3+7000/72000 Discounted Payback 3+36581.54/45757.3 +3+36581.54/45757.3 14 1+NPV/Initial investment 1+9175.76/144000 =1+9175.76/144000 16