Question 4 (Total marks =15)
You are evaluating an investment project, Project XX, with the following cash flows:
Period Cash Flow
Calculate the following:
(a). Payback period ( 2 marks)
(b). Calculate the discounted cash flows for each year, assuming a 10% discount rate.
(c) Discounted payback period, assuming a 10% cost of capital.
(d) .Net present value, assuming a 10% cost of capital.
(e). Profitability index, assuming a 10% cost of capital.
(f). Modified internal rate of return, assuming reinvestment at 10%.
1. Payback Period = Total Investment = 200,000 + 65,000 = 265,000
Cash Flow during the life of the project = 260,000
So the firm will not be able to recover the money during the life of the asset
2. Discounted cash flows are
|Year||Cash Flows||PVF||PVCI||Cummulative cash Flow|
3. Discounted pay back period
Present Value of Cash Outflows = 200,000 + 40360 = 240,360
Present Value of Cash Iflows = 206041
SO Discounted payaback period can be determined as it extends beyond the life of the project
4. NPv = Sum tota of all cash flows i.e total of 4th column in the above table = -34,318.60
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