a firm has well spend -10000 today for a project. the after tax cash flow of the

Question

a firm has well spend -10000 today for a project. the after tax cash flow of the project will be 4000 for the next three years. the firms cost of capital is 10%
A. What is the projects IIR? B. What’s the npv? C. Payback period?


a firm has well spend -10000 today for a project. the after tax cash flow of the project will be 4000 for the next three years. the firms cost of capital is 10%
A. What is the projects IIR? B. What’s the npv? C. Payback period?



A. What is the projects IIR? B. What’s the npv? C. Payback period?

Explanation / Answer

A.Let irr be x%
At irr,present value of inflows=present value of outflows.

10000=4000/1.0X+4000/1.0X^2+4000/1.0X^3

Hence x=irr=9.70%(Approx).

b.

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=4000[1-(1.1)^-3]/0.1

=$4000*2.486851991

=$9947.41

NPV=Present value of inflows-Present value of outflows

=$9947.41-$10000

=($52.59)(Approx)(Negative).

c.Payback period=Initial investment/Annual cash flows

=(10000/4000)=2.5 year.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.