Q6) payback period
Years | Cashflow | Cummulative Cashflow |
0 | (-2,000,000) | (-2,000,000) |
1 | 720,000 | (-1,280,000) |
2 | 840,000 | (-440,000) |
3 | 860,000 | 420,000 |
4 | 620,000 | 1,040,000 |
Payback period = full year until recovery + unrecovered cost at the beginning of last year/cashflow during last year
= 2 + 440,000/860,000
= 2 + 0.51
= 2.51 years
•Finding IRR
We use financial calculator to find Irr
Inputs : C0 = - 2,000,000
C1 = 720,000. Frequency =1
C2 = 840,000. Frequency =1
C3 = 860,000. Frequency =1
C4 = 620,000. Frequency =1
IRR = Compute
We get, Irr = 19.47%
•Finding NPV
We use financial calculator to find Npv
Inputs: C0 = -2,000,000
C1 = 720,000. Frequency =1
C2 = 840,000. Frequency =1
C3 = 860,000. Frequency =1
C4 = 620,000. Frequency = 1
I = 11%
NPV = Compute
We get , NPV = 367,649.28
• Finding Profitability index
PI = Cash outflow + Npv / initial outflow
= 2,000,000 + 367,649.28 / 2,000,000
= 2,367,659.28 / 2,000,000
= 1.18
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