Question

NPV, the IRR method, the payback rule, or the discounted payback rule. In your answer define and describe each method, using formulas

Answer #1

**NPV** is the sum of present value of all the cash
inflows and cash outflows.

.NPV = CF0 + CF1/((1+r)^1) + CF2/((1+r)^2)

**IRR** is the interest rate at which the NPV is
equal to 0.

NPV = 0 = CF0 + CF1/((1+IRR)^1) + CF2/((1+IRR)^2)

**Payback period** is number of years it takes to
recover the investment.

Payback period = full years untill recovery + (Unrecovered cost at the beginning of the last year/cash flow in during the last year)

**Discounted Payback period** is exactly the same
as Payback period but instead of using the Cash flows we use the
discounted cash flows

Discounted Payback period = full years untill recovery + (Unrecovered cost at the beginning of the last year/cash flow in during the last year)

Rank the following capital budgeting techniques in order of
importance: Payback, Discounted Payback, IRR, NPV and MIRR. Why
does this order make sense?

Using the Payback Method, IRR, and NPV Problems
Purpose of Assignment
The purpose of this assignment is to allow the student to
calculate the project cash flow using net present value (NPV),
internal rate of return (IRR), and the payback methods.
Assignment Steps
Resources: Corporate
Finance
Calculate the following time value of money
problems in Microsoft Excel or Word document. You must show all of
your calculations.
If you want to accumulate $500,000 in 20 years, how much do you...

What are your thoughts on why payback and IRR are more
frequently used than NPV, when evaluating projects?
Which method does your organization prefer?

1) Explain the Cash Payback Technique.
2) Explain the two methods for determining the Discounted Cash
Flow technique
3) Explain the profitability Index for mutually exclusive
projects and what does a positive NPV indicate? A negative NPV?
4) What is meant by [performing a post-audit of investment
projects?
5) Explain what the Internal Rate of Return Method (IRR)
does?
6) What is the decision rule for NPV> For IRR
7) What is the Annual Rate of Return?

Please show your steps! Question 1
a) What is the NPV, IRR, and payback period of a project with
the following cash flows if WACC is 20%?
Time: 0
1
2
3
4
5
-$350,000
$100,000
$100,000
$100,000
$50,000
$50,000
NPV=
IRR=
Payback period=
b) Should you accept or reject the project according to NPV and
IRR?
*can you please include greater than an less than signs.* Thank
you.

(Payback period, NPV, PI, and IRR calculations) You are
considering a project with an initial cash outlay of $80,000 and
expected free cash flows of $26,000 at the end of each year for 6
years. The required rate of return for this project is 7
percent.
a. What is the project's payback period?
b. What is the project's NPV?
c. What is the project's PI?
d. What is the project's IRR?
a. The project's payback period is nothing years. (Round...

(Payback
period, NPV, PI, and IRR
calculations)
You are considering a project with an initial cash outlay of
$75,000
and expected free cash flows of
$26,000
at the end of each year for
5
years. The required rate of return for this project is
7
percent.
a. What is the project's payback period?
b. What is the project's
NPV?
c. What is the project's
PI?
d. What is the project's
IRR?

Your firm is considering a project that has an NPV of $32,600,
an IRR of 9.5 percent, and a payback period of 8.9 years. The
required return is 9% and the required payback period is 9 years.
Which one of the following statements correctly applies to this
project?
A) The net present value indicates accept while the internal
rate of return indicates reject.
B) The payback decision rule is sufficient in making the
decision about the project.
C) The payback...

Define the relationship between hurdle rate and IRR and
NPV.

Payback, NPV, and IRR: Rieger International is evaluating the
feasibility of investing
$96,000 in a piece of equipment that has a 5-year life. The
firm has estimated the cash inflows associated with the proposal as
shown in the following table: The firm has a 8% cost of
capital.
a. Calculate the payback period for the proposed
investment.
b. Calculate the net present value (NPV) for the proposed
investment.
c. Calculate the internal rate of return (IRR), rounded to
the nearest...

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