Question

A project costs $300 and has cash flows of $75 for each of the first three years and S50 in each of the project's next three years. What is the payback period of the project? a. The project never pays back yoT 1o vtia1ovinU b. Around 2 years Around 4.50 years d. Around 7 years 4. c. EZY Around 9 years u lun92ol9nonigspe ordi no 1/r2ns uov hm bne alions beol e iteup sh diod muts notase srd brs toblood noiteaup sh diod no ding saiog 09) A he ni anoiteoup ACT0 fstot &o18 919f moon sdi 9veol sold 5. Suppose a project costs $2,500 and produces cash flows of $400 over each of the following 8 years starting l year from today. What is the NPV of the project is the cost of capital is boi ton ob oy e. 5.84%? owens tsolo odt hem dbtam ts a. -320 b. 0 c. 113 d. 381 e. 900 A borrowing rate is quoted as 12 % APR and has an EAR of 12.55 % . What is the compounding frequency during the year? a. Annually b. Semiannually c. Quarterly d. Monthly Daily 6. i e m e. 7. Suppose you purchase a Honda Accord for $25,000. You pay $5,000 as a down payment and finance the rest with a 5-year loan with monthly payments. The car loan is quoted at 6 % APR with monthly compounding. What is your monthly payment? a. $312.23 b. $345,91 c. $386.66 d. $409.21 e. $451.99 8. You purchase a home where the monthly mortgage payment is $821.69 payable at the end of each month. It is a 30-year mortgage at an APR of 6 % compounded monthly. How much will still you owe the bank (loan outstanding) after making the required payments for 10 years? a. $115,301 b. $114,692 $119,298 d. $120,319 $110,103 C. e
please answe all

Answer 1

Solution4: Part c is correct- Around 4.5 years

YEAR	CASH FLOW	NET INVESTED CASH
0	-300
1	75	-225
2	75	-150
3	75	-75
4	50	-25
5	50	25
6	50

Pay back period	No. of years required by the cash flow to recover initial cash outlay investment
Upto Year 4 :75+75+75+50=275 Recovered
After 4th year there is more cash inflow (50) to recover (-25) outstanding cash outlay
Pay back period	=4+25/50=4.5

Solution 5: Part B: zero NPV

YEAR	CASH FLOW	Present value of cash flows@i=5.84% Formula:PV= FV/(1+R)^n
0	-2500
1	400	=400/1.0584=377.9289
2	400	=400/(1.0584)^2=357.0757
3	400	=400/(1.0584)^3=337.3731
4	400	=400/(1.0584)^4=318.7577
5	400	=400/(1.0584)^5=301.1694
6	400	=400/(1.0584)^6=284.5516
7	400	=400/(1.0584)^7=268.8507
8	400	=400/(1.0584)^8=254.0162
	total present value of cash inflow	2499.723

total present value of cash inflow

2500

approx.

Present value of cash inflow=sum of the present value of each year cash inflow discounted at 5.84%
Present value of cash outflow=2500( Given)
Total Net present value=present value of cash inflow - present value of cash outflow	=2500-2500=0