Question

An investment project has annual cash inflows of $5,400, $6,000, $7,300, and $8,600, and a discount rate of 10 percent. What is the discounted payback period for these cash flows if the initial cost is $9,000? options: 2.02 years 2.51 years 1.66 years 1.83 years 1.95 years

A project that provides annual cash flows of $16,000 for 9 years costs $85,824 today. Assuming a discount rate of 13%, What is the NPV of this project? options: -3,850.33 1,872.49 2,825.92 4,291.68) -3717.52

Answer 1

1)

YEAR	CASH FLOW	Discounted cash flow	Cumulative cash flow	Cumulative discounted cash flow
0	-9000	-9000	-9000	-9000
1	5400	4909.090909	-3600	-4090.909091
2	6000	4958.677686	2400	867.768595
3	7300	5484.598047	9700	6352.366642
4	8600	5873.915716	18300	12226.28236

discounted payback period = 1+ 4090.91/4958.68

= 1.83 years

2)

NPV = -initial investment + PV of future cash flows

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

NPV = -85824 + 16000/1.13 + 16000/1.13^2 + 16000/1.13^3 + 16000/1.13^4 + 16000/1.13^5 + 16000/1.13^6 + 16000/1.13^7 + 16000/1.13^8 + 16000/1.13^9

= -3717.52