Question

Consider an investment that costs $110,000 and has a cash inflow of $25,000 every year for 6 years. The required return is 7%, and required payback is 4 years. 1. What is the payback period? Should we accept the project? 2. What is the NPV? Should we accept the project? 3. What is the IRR? Should we accept the project? 4. What is the Profitability Index? Should we accept the project?

Answer 1

O nitiat Muistiment noooo BOO - Cash low = 25000 r= 7 / 7 Payback period= nitial muestment ..dor cash nflow = loovo =) 4-4 years. 25ooo sure required payback is 4 years and getual payback is 4.4 years project should not be accepted I NPV = - (tot T + Cfl Cltr) Cf2 Ctr) 2 cfl (lt + ) 3 cfy (tror. CAS + . + (ltr) 5 Cf6 (486. - 110000 + 25000 - TH 7/-) + 25000 + 2 sovo (+74.2 (+7%)3 + 25000 (It 7.1.) 4 T 25000 (4 71.5 + 25000 (H77-36

2 - 10000 tr 119 163.490 m = $ 9163. 49. since NN pu is positui it should be accepted ③ In IRR we put Nov. 20. 22 [Pilt Lo= - ufot Dronz to Cfl (ltr) + f2 (itin + cf3 & cty (HI) 3 CHINA + + bildes 2 Cts CHirs Cts (HI) 6. 10= - 110000 + 2500 + 2500 + 2500 (tim) CHIR) 2 CHI} + 25out (tl ) 4 25000 + 25ow Clfin)5 (HIR 6. By using a get I IRR financial Cappelanter we = 90 652/ Since IRK rate is more return ut Accepted than required shoved be I

- 4 Profitability index = Present value of cash D.S. flow Pd kos mitras muestment => 119163.49 = 1.08 than 1 sunce ple is greater be accepted. It should * Capulated in part 2 ie NPV.