(Part 1) Using a 4.5% discount rate, calculate the Net Present Value, Payback, P
ID: 2702244 • Letter: #
Question
(Part 1)Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
Project 1
Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
Project 2
Initial Invest= $970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
Project 3
Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
(Part 2)
Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem. Explain.
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain. (Part 1)
Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
Project 1
Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
Project 2
Initial Invest= $970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
Project 3
Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
(Part 2)
Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem. Explain.
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain. (Part 1)
Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support you answer.
Project 1
Initial Invest= $490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
Project 2
Initial Invest= $970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10.
Project 3
Initial Invest= $820,000, Cash inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10.
(Part 2)
Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem. Explain.
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.
Explanation / Answer
Project 1:
Year
Cash Flows
0
1
2
3
4
5
6
7
8
9
10
PVF @ 4.5%
$(490,000.00)
$100,000.00
$100,000.00
$100,000.00
$100,000.00
$100,000.00
$50,000.00
$50,000.00
$50,000.00
$50,000.00
$50,000.00
0.957
0.916
0.876
0.839
0.802
0.768
0.735
0.703
0.673
0.644
Present Value of Cash Inflows
Present Value
$95,693.78
$91,573.00
$87,629.66
$83,856.13
$80,245.10
$38,394.79
$36,741.42
$35,159.26
$33,645.22
$32,196.38
Cumulative Cash Flows
$(490,000.00)
$(390,000.00)
$(290,000.00)
$(190,000.00)
$(90,000.00)
$10,000.00
$60,000.00
$110,000.00
$160,000.00
$210,000.00
$260,000.00
$615,134.75
Net Present Value = Present Value of Cash Inflows - Initial Investment
Net Present Value = $615,134.75 - $490,000
Net Present Value
$125,134.75
Profitability Index = Present Value of Cash Inflows / Initial Investment
Profitability Index = $615,134.75 / $490,000
Profitability Index
1.26
Payback Period = A + B/C
Where, A = Last period with negative cumulative cash flow
B= Absolute value of cumulative cash flows at the end of the period A
C = Actual cash flowsduring the period after A
Pay Back Period = 4 years + ($90,000 / $100,000)
Pay Back Period
4.90
Internal Rate of Return
(using excel formula)
10.38%
Project 2:
Year
Cash Flows
0
1
2
3
4
5
6
7
8
9
10
PVF @ 4.5%
$(970,000.00)
$400,000.00
$400,000.00
$400,000.00
$$$$$250,000.00
$250,000.00
$250,000.00
0.957
0.916
0.876
0.839
0.802
0.768
0.735
0.703
0.673
0.644
Present Value of Cash Inflows
Present Value
$382,775.12
$366,291.98
$350,518.64
$$$$$175,796.28
$168,226.11
$160,981.92
Cumulative Cash Flows
$(970,000.00)
$(570,000.00)
$(170,000.00)
$230,000.00
$230,000.00
$230,000.00
$230,000.00
$230,000.00
$480,000.00
$730,000.00
$980,000.00
$1,604,590.05
Net Present Value = Present Value of Cash Inflows - Initial Investment
Net Present Value = $1,604,590.05 - $970,000
Net Present Value
$634,590.05
Profitability Index = Present Value of Cash Inflows / Initial Investment
Profitability Index = $1,604,590.05 / $970,000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.