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An investment requires an outlay of $100,000 today. Cash inflow from the investment are expected to...

An investment requires an outlay of $100,000 today. Cash inflow from the investment are expected to be $40,000 per year at the end of year 4, 5, 6, 7, and 8. You require a 20% rate of return on this type of investment. Answer the following questions and explain the formula for each question:

  1. First draw the time line and specify the cash outflow and inflow for each period.
  2. Calculate the net present value.
  3. Calculate the Internal rate of return of this investment.
  4. Calculate the payback periods
  5. Shall the investment be undertaken?

a

Discount rate

??

year

cash flow

0

??

1

??

2

??

3

??

4

??

5

??

6

??

7

??

8

??

b

npv

??

c

IRR

??

d

payback perioe

??

e

yes or no?

why?
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