Question

A project has an initial cost of \$52,125, expected net cash inflows of \$12,000 per year...

A project has an initial cost of \$52,125, expected net cash inflows of \$12,000 per year for 8 years, and a cost of capital of 12%. What is the project's NPV? (Hint: Begin by constructing a time line.)

, What is the project IRR?

What is the project's payback period?

What is the project's discounted period?

 Discount rate 12.000% Year 0 1 2 3 4 5 6 7 8 Cash flow stream -52125 12000 12000 12000 12000 12000 12000 12000 12000 Discounting factor 1.000 1.120 1.254 1.405 1.574 1.762 1.974 2.211 2.476 Discounted cash flows project -52125.000 10714.286 9566.327 8541.363 7626.217 6809.122 6079.573 5428.191 4846.599 NPV = Sum of discounted cash flows NPV Project = 7486.68 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor
 Project IRR is the rate at which NPV =0 IRR 16.00% Year 0 1 2 3 4 5 6 7 8 Cash flow stream -52125.000 12000.000 12000.000 12000.000 12000.000 12000.000 12000.000 12000.000 12000.000 Discounting factor 1.000 1.160 1.346 1.561 1.811 2.100 2.436 2.826 3.278 Discounted cash flows project -52125.000 10344.929 8918.130 7688.118 6627.753 5713.636 4925.597 4246.246 3660.592 NPV = Sum of discounted cash flows NPV Project = 0.000 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor IRR= 16.00%
 Project Discount rate= 12.00% Year Cash flow stream Cumulative cash flow Discounting factor Discounted cash flows project Cumulative discounted CF 0 -52125 -52125 1 -52125 -52125.00 1 12000 -40125 1.12 10714.28571 -41410.71 2 12000 -28125 1.2544 9566.326531 -31844.39 3 12000 -16125 1.404928 8541.362974 -23303.02 4 12000 -4125 1.57351936 7626.216941 -15676.81 5 12000 7875 1.762341683 6809.122269 -8867.69 6 12000 19875 1.973822685 6079.573454 -2788.11 7 12000 31875 2.210681407 5428.190584 2640.08 8 12000 43875 2.475963176 4846.598736 7486.68
 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening between year 4 and 5 therefore by interpolation payback period = 4 + (0-(-4125))/(7875-(-4125)) 4.34 Years Discounted payback period is the time by which discounted cashflow cover the intial investment outlay this is happening between year 6 and 7 therefore by interpolation payback period = 6 + (0-(-2788.11))/(2640.08-(-2788.11)) 6.51 Years Where Discounting factor =(1 + discount rate)^(corresponding year) Discounted Cashflow=Cash flow stream/discounting factor