What is the payback period of the project? (Round your answer to 2 decimal place
ID: 2732729 • Letter: W
Question
What is the payback period of the project? (Round your answer to 2 decimal places.)
What is project NPV if the discount rate is 4%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
What is project NPV if the discount rate is 9%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
A project that costs $2,600 to install will provide annual cash flows of $610 for the next 6 years. The firm accepts projects with payback periods of less than 4 years.Explanation / Answer
Calculation of the Payback Period Year Cash Flow Cumulative 0 -2600 -2600 1 610 -1990 2 610 -1380 3 610 -770 4 610 -160 5 610 450 6 610 1060 Paybacke period = 4+160/610 Paybacke period = 4.26 Years The Project will not be accepted as the payback period is more than 4 years b NPV, Discount Rate is 4% NPV = Cash Inflows( PVAF, Life, Rate)- Cash Outflows From the annuity table NPV = 610*5.242-2600 3197.70-2600 NPV = $597.70 The project will be accepted as the NPV is positive c NPV, Discount Rate is 9% NPV = 610*4.485-2600 2736.41-2600 NPV = 136.41 The project will be accepted as the NPV is positive
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