Question2 Consider the following cash flows from different projects: (a) Calcula

Question

Question2       
   Consider the following cash flows from different projects:    (a) Calculate the payback period for each project. (b) Determine whether it is meaningful to calculate a payback period for project D. (c) Calculate the discounted payback period for each project. (d) Calculate the NPV of each project. (e) Calculate the IRR of each project (Note: assume that the discount rate is 10%)

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YUCM ECON401. E Q (5 marks) Consider the following cash flows from different projects: Project's Cash Flow ($) 5,000 2,000 1,500 -1,000 5,000 3,000 3,500 7,500 2,000 2,000 2,000 1,000 5,000 200 200 200 200 1,000 1,000 2,000 3,000 200 (a) Calculate the payback period for each project. (b) Determine whether it is meaningful to calculate a payback period for project D (c) Calculate the discounted payback period for each project. (d) Calculate the NPV of each project. e) Callate the IRR of each project Note: assume that the discount rate is 10%) age

Explanation / Answer

a) payback period for each project

b) No, it is not meaningful to determine the payback period for project D becuase there is a cash outflow after the initial year.

c)

d)

e) IRR

n 0 1 2 3 4 5 6 7 8 cash flows A -3500 800 800 800 800 800 800 800 800 B -5000 2000 1500 1500 500 500 1500 C -7500 2000 2000 2000 4000 5000 D -4000 5000 3000 -2500 -1000 1000 1000 2000 3000 Cumulative cash flows A -3500 -2700 -1900 -1100 -300 500 1300 2100 2900 B -5000 -3000 -1500 0 500 1000 2500 2500 2500 C -7500 -5500 -3500 -1500 2500 7500 7500 7500 7500 D -4000 1000 4000 1500 500 1500 2500 4500 7500 Payback period A 4.37 years B 3 years C 3.37 years D NA

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