Question

Calculate the Net Present Value and Pay-Back Period for the below Investment (please show calculations): Rate...

Calculate the Net Present Value and Pay-Back Period for the below Investment (please show calculations):

Rate of Return: 15%

Inflation Rate: 2%

Please note: Investment costs are taken at the start of the year and recurring costs and revenue at the end of the year.

Year Investment Cost Recurring Cost Revenue
1 $              2,000,000
1 $            100,000 $         1,500,000
2 $            100,000 $         1,500,000
3 $            100,000 $         1,500,000
4 $            100,000 $         1,500,000
5 $                        -   $                        -  

Homework Answers

Answer #1
0 1 2 3 4 5
Revenue 1530000 1560600 1591812 1623648 1656121
Recurring cost 102000 104040 106121 108243 110408
Net revenue 1428000 1456560 1485691 1515405 1545713
Investment cost 2000000
Annual cash flows -2000000 1428000 1456560 1485691 1515405 1545713
PVIF at 15% 1 0.86957 0.75614 0.65752 0.57175 0.49718
PV at 15% -2000000 1241739 1101369 976866 866438 768493
NPV 2954904
Cumulative cash flows -2000000 -572000 884560 2370251 3885656 5431369
Payback period = 1+572000/1456560 = 1.39 years
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