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Given the following attributes of an investment project with a five-year life: investment outlay, year 0,...

Given the following attributes of an investment project with a five-year life: investment outlay, year 0, $8,700; after-tax cash inflows, year 1, $930; year 2, $1,070; year 3, $3,200; year 4, $3,500; and year 5, $4,900. (a) Use the built-in NPV function of Excel to estimate the NPV of this project. Assume an after-tax discount rate of 11.0% (b) Estimate the payback period, in years, for this project under the assumption that cash inflows occur evenly throughout the year. (Round "Payback period" to the nearest whole number. Negative amounts should be entered with a minus sign. Round your answers to the nearest whole dollar amount.)

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Answer #1

since NPV function in EXCEL calculates only present value of cash inflows , we have to add the cash outflow in year 0 to get the actual NPV

payback period is the time it takes for the project cash inflows to recover the investment outlay of the project . This is the year in which the cumulative cash flow becomes 0 , since this means that the investment outlay has been recovered.

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