Question

What is the return of the following project? Find the discounted payback and profitability index of this project, assuming interest rate is 8%. CF(t=0) = -5000 CF (t=1) = 8000 CF (t=2) = -2000 CF (t=3) = 4000

Answer 1

Return of Project based on interest rate of 8%

No. Of Years	Cash Flows	Discounted Interest Rate	Discounted Cash Flow
0	-5000	1.0000	-5000.00
1	8000	0.9259	7407.20
2	-2000	0.8573	-1714.60
3	4000	0.7938	3175.20
		Net Present Value (NPV)	3867.80

Return Of project is 3867.80

Discounted Payback : Very First year of cash flow receivwed full initial investment based on Discounted ROI..

Profitability index is : (NPV+Initial Investment)/Initial Investments
                            = 8867.80/5000.00 *100
                            = 1.7736%