Question

Holly Inc has a project with a cost of -$X with an equal the cash inflow...

Holly Inc has a project with a cost of -$X with an equal the cash inflow of $700 for three years. If the project’s payback is 2.2 years, the cost of capital is 9%, and the IRR is 17.27%, what is the NPV of this project?

Year 0 1 2 3

Cash Flows -$X $700 $700 $700

a. $-1,540.00 b. $231.91 c. $0 d. $560.00 e. $200.80

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Answer #1

intial investment = cashflow*payback = 2.2*700=1540

Project
Discount rate 9.000%
Year 0 1 2 3
Cash flow stream -1540 700 700 700
Discounting factor 1.000 1.090 1.188 1.295
Discounted cash flows project -1540.000 642.202 589.176 540.528
NPV = Sum of discounted cash flows
NPV Project = 231.91
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
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