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  3. 2) project k costs $44,657.75, its expected cash i

2) Project K costs $44,657.75, its expected cash inflows are $10,000 per year for 9 years,...

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Finance

2) Project K costs $44,657.75, its expected cash inflowsare $10,000 per year for 9 years, and its WACC is 13%. What is theproject's IRR?

3) Project K costs $55,000, its expected cash inflows are $8,000per year for 12 years, and its WACC is 14%. What is the project'spayback?

Please show all work & formulas

Answer & Explanation Solved by verified expert
3.9 Ratings (669 Votes)

2

Project K
IRR is the rate at which NPV =0
IRR 0.169
Year 0 1 2 3 4 5 6 7 8 9
Cash flow stream -44657.8 10000 10000 10000 10000 10000 10000 10000 10000 10000
Discounting factor 1 1.169 1.366561 1.59751 1.8674888 2.183094 2.552037 2.983331 3.487514 4.076904
Discounted cash flows project -44657.8 8554.32 7317.639 6259.743 5354.7846 4580.654 3918.438 3351.958 2867.372 2452.842
NPV = Sum of discounted cash flows
NPV Project K = 0.000526
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
IRR= 0.169 =16.9%
Accept project as IRR is more than discount rate

3)

Project K
Year Cash flow stream Cumulative cash flow
0 -55000 -55000
1 8000 -47000
2 10000 -37000
3 10000 -27000
4 10000 -17000
5 10000 -7000
6 10000 3000
7 10000 13000
8 10000 23000
9 10000 33000
10 10000 43000
Payback period is the time by which undiscounted cashflow cover the intial investment outlay
this is happening between year 5 and 6
therefore by interpolation payback period = 5 + (0-(-7000))/(3000-(-7000))
5.7 Years

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Transcribed Image Text

2) Project K costs $44,657.75, its expected cash inflowsare $10,000 per year for 9 years, and its WACC is 13%. What is theproject's IRR?3) Project K costs $55,000, its expected cash inflows are $8,000per year for 12 years, and its WACC is 14%. What is the project'spayback?Please show all work & formulas

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