Question

1.Project K costs $57,890.94, its expected cash inflows are $14,000 per year for 8 years, and its WACC is 9%. What is the project's IRR? Round your answer to two decimal places.

2.Project K costs $35,000, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 9%. What is the project's discounted payback? Round your answer to two decimal places.

3.Project K costs $45,000, its expected cash inflows are $11,000 per year for 10 years, and its WACC is 13%. What is the project's NPV? Round your answer to the nearest cent.

Answer 1

1. Given Project cost = 57890.94; Cash Inflow = 14000;

IRR is that point where the discounted cashflow will be equal to cost.

57890.94 = 14000 / 1+r + 14000 / (1+r)² + 14000 / (1+r)³ ..... + 14000 / (1.09)8  

By solving we can find that IRR = 17.55%

2. Discounted payback = Inflow * P.V Discount factor - Cash outlay.

In the year where discounted inflow is higher than balance cash outflow , Number of days = (Remaining outflow / Discounted cash flow of n+1 year) * 365 days

4 years PV cumulative factor = 3.240; Remaining amount = (35000 - 32400) = 2600.

Number of days = (2600 / (10000*.650)) * 365 = 146 days.

Therefore, Discounted payback period = 4 years 146 days.

3. Given cash outflow = 45000; Annual cash inflow = 11000; WACC = 13%.

Present value cumulative factor for 10 years @ 13% = 5.426

Net Present Value = (11000 * 5.426) - 45000 = 59686 - 45000 = $ 14686