Question

A project has the following forecasted cash flows: Cash Flows Thousands of dollars C0 C1 C2 C3 -100 40 60 50 The investor expected rate of return is 10%. The cost of capital is 12%. Required: 1.What will you choose to be the discount rate? Why? 2.Please calculate the payback period (PP) and return on investment (ROI). 3.Please calculate NPV，PVI and IRR.. 4.Make decision based on the above calculation and explain the reasons. 5.David said that the profit is the same as the cashflow. Do you think his opinion is right or wrong? Why?

Answer #1

1. we will choose cost of capital=12% as the discount rate because it is the actual cost that has to paid for raising the capital for the capex of the particular project. In other way, my cost of funding for the project is 12%. If we consider cost of capital for the discounting of future cashflows, that give us a right picture.

Pay back period is the breakeven. In how many years, will I recieve my initial investment. In this case, the investor recieves his investment in 2 years ($40,000+$60,000=$100,000)

In all these calculations, we should discount the future cashflows to the present value.

David's statement is incorrect because not all the cashflows are profit, we have to discount it back to present value and then subtract with the investment. The resultant figure is the actual profit. In this case, the actual profit is $19,135

Suppose the cash flows for project are C0 =
-2000; C1 = 500; C2 = 1000;
C3 = 4000, C4= 1000,
C5= 500. The discounted payback period is
____________________ and profitability index is ___________________
at a discount rate of 10 percent.

2. A project has the following cash flows
C0
C1
C2
C3
($1000)
$300
$400
$600
What is the project’s payback period?
Year
0
1
2
3
Cash Flow
($1000)
$300
$400
$600
Cumulative
($1000)
($700)
($300)
300
a. Calculate the projects NPV at 10%.
b. Calculate the project’s PI at 10%.
c. Calculate an IRR for the project in question 2
How would you answer a,b, and c in excel? I am getting...

A project has the following cash flows.
C0
C1
C2
C3
($770)
$290
$530
$236
Calculate an IRR for the project using an iterative technique.
(Hint: Start by guessing 17%.) Do not round intermediate
calculations. Round PVF values in intermediate calculations to four
decimal places. Round the answer to whole percentage.
%

2. A company is considering a project that has the following
cash flows: C0 = -3,000, C1 = +900, C2 = +500, C3 = +1,100, and C4
= +1,900, with a risk-adjusted discount rate of 8%. A) Calculate
the Net Present Value (NPV), Internal Rate of Return (IRR),
Modified Internal Rate of Return (MIRR), and Profitability Index
(PI) of this project. B) If you were the manager of the firm, will
you accept or reject the project based on the...

Given the following Cash flows:
C0 = - $6,750
C1 = $4,500
C2 = $18,000
Calculate the NPV of the above project for discount rates of
0%, 50%, and 100%.
What is the IRR of the project?

The
following cash flows are given for a project
C0 = -9000 C1= +9000 C2= +18000
The NPV of the project at a discount rate of 50% is:
A.) 18,000 B.) 5,000 C.) 11,000 D.) zero or E.) none of
these
The IRR for this project is:
A.) 10% B.) 25% C.) 50% D.) 100% or E.) none of these
The payback period for this project is:
A.) zero years B.) one year C.) two years D.) three years or...

Consider the following cash flows: Cash Flows ($) C0 C1 C2
−6,950 4,700 18,400 a. Calculate the net present value of the above
project for discount rates of 0, 50, and 100%. NPV @ 0% $ NPV @ 50%
$ NPV @100% $ b. What is the IRR of the project? (Do not round
intermediate calculations. Enter your answer as a percent rounded
to the nearest whole number.) IRR %

Here are the cash flows for a project under consideration: C0 C1
C2 −$8,010 +$5,940 +$20,160 a. Calculate the project’s net present
value for discount rates of 0, 50%, and 100%. (Round your answers
to the nearest whole dollar.) b. What is the IRR of the project?
(Do not round intermediate calculations. Enter your answer as a
whole percent.)

Here are the cash flows for a project under consideration:
C0
C1
C2
−$7,020
+$4,860
+$18,360
a. Calculate the project’s net present value
for discount rates of 0, 50%, and 100%. (Round your answers
to the nearest whole dollar.)
b. What is the IRR of the project? (Do
not round intermediate calculations. Enter your answer as a whole
percent.)

Consider projects A and B: Cash Flows (dollars)
Projects
A B
C0 450,000 320,000
C1 310,000 80,000
C2 120,000 100,000
C3 85,000 250,000
What is the NPV at 10% required rate? Which is the best
Project?

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