What is the payback period for the following set of cash flows? Year Cash Flow 0
ID: 2615967 • Letter: W
Question
What is the payback period for the following set of cash flows?
Year
Cash Flow
0
?$ 1,700
1
1,300
2
1,200
3
2,400
4
2,900
Year
Cash Flow
0
?$8,100
1
2,500
2
2,100
3
2,800
(a)
What is the profitability index for the cashflows if the relevant discount rate is 10 percent?
$0.717 $0.792 $0.755 $0.777 $0.732
(b)
What is the profitability index for the cashflows if the relevant discount rate is 17 percent?
$0.636 $0.669 $0.689 $0.649 $0.702
(c)
What is the profitability index for the cashflows if the relevant discount rate is 25 percent?
What is the payback period for the following set of cash flows?
Explanation / Answer
1.
Payback period=Last period with a negative cumulative cash flow+(Absolute value of cumulative cash flows at that period/Cash flow after that period).
=1+(400/1200)
=1.33 years(Approx).
2.
a.
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=2500/1.1+2100/1.1^2+2800/1.1^3
=$6111.95
PI=Present value of inflows/Present value of outflows
=$6111.95/$8100
=0.755(Approx)
b.
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=2500/1.17+2100/1.17^2+2800/1.1^73
=$5419.07
PI=Present value of inflows/Present value of outflows
=$5419.07/$8100
=0.669(Approx).
c.
Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)
=2500/1.25+2100/1.25^2+2800/1.25^73
=$4777.6
PI=Present value of inflows/Present value of outflows
=$4777.6/$8100
=0.590(Approx).
Year Cash flows Cumulative Cash flows 0 (1700) (1700) 1 1300 (400) 2 1200 800 3 2400 3200 4 2900 6100Related Questions
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