(Payback period, NPV, Pl, and IRR calculations) You are considering a project wi

Question

(Payback period, NPV, Pl, and IRR calculations) You are considering a project with an initial cash outlay of $75,000 and expected free cash flows of $24,000 at the end of each year for 5 years. The required rate of return for this project is 9 percent a. What is the projects payback period? b. What is the project's NPV? c. What is the project's P/? d. What is the project's IRR? a. The project's payback period is years. (Round to two decimal places.) b. The project's NPV is S- (Round to the nearest cent.) c. The the project's Pl is (Round to three decimal places.) d. The project's IRR is %. (Round to two decimal places.)

Explanation / Answer

a. payback = 3 + 3/24 = 3.13 years

b.

NPV = 18,351.63

PI = 1 + 18,351.63/75,000 = 1.25

IRR = 18.03% (use IRR function in Excel)

Discount rate 9.0000% Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow          (75,000.000) 0                           (75,000.00)                       (75,000.00)            24,000.000 1                             22,018.35                       (52,981.65)            24,000.000 2                             20,200.32                       (32,781.33)            24,000.000 3                             18,532.40                       (14,248.93)            24,000.000 4                             17,002.21                            2,753.28            24,000.000 5                             15,598.35                          18,351.63

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