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Consider a project that has a 10% cost of capital that requires an initial investment of...

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Finance

Consider a project that has a 10% cost of capital that requiresan initial investment of $10,000. The year 1 net cash inflow is$2,450; the year 2 net cash inflow is $2,850; the year 3 net cashinflow is $3,350; the year 4 net cash inflow is $3,750; and theyear 5 net cash inflow is $5,250. What is the project's discountedpayback? NPV? AND IRR?

Answer & Explanation Solved by verified expert
4.2 Ratings (599 Votes)

a. Discounted payback 4.10 years
b. NPV $     2,920.69
c. IRR 19.51%
Working:
Calculation of Discounted payback period and Net present value.
Year Cash flows Discount factor Present value of cash flows Cumulative Present value of cash flows
a b c=1.10^-a d=b*c e
0 $       -10,000      1.0000 $ -10,000.00 $ -10,000.00
1               2,450      0.9091         2,227.27        -7,772.73
2               2,850      0.8264         2,355.37        -5,417.36
3               3,350      0.7513         2,516.90        -2,900.45
4               3,750      0.6830         2,561.30           -339.15
5               5,250      0.6209         3,259.84         2,920.69
Discounted payback = 4+(339.15/3259.84)
=           4.10
Calculation of IRR:
IRR is the rate at which Net Present value is zero.
Year Cash flows
0 $       -10,000
1               2,450
2               2,850
3               3,350
4               3,750
5               5,250
IRR =irr(B15:B20)
19.51%

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Transcribed Image Text

Consider a project that has a 10% cost of capital that requiresan initial investment of $10,000. The year 1 net cash inflow is$2,450; the year 2 net cash inflow is $2,850; the year 3 net cashinflow is $3,350; the year 4 net cash inflow is $3,750; and theyear 5 net cash inflow is $5,250. What is the project's discountedpayback? NPV? AND IRR?

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