Question

Q1.) What is the payback period for the following set of cash flows?

Year Cashflow

0 -$3900

1 1500

2 1400

3 1800

4 1800

Q2.)

An investment project costs $14,400 and has annual cash flows of $4,200 for six years. What is the discounted payback period if the discount rate is 5 percent?

Q3.)A project has projected cash flows of –$28,800, $10,400, $13,100, $15,000, $12,100 and –$8,600 for years 0 to 5, respectively. Should this project be accepted based on the modified internal rate of return if interest rate is 15 percent? Why or why not?

Q4.)

Year Cash Flow (X) Cash Flow (Y)

0 -$20,600 -$20,600

1 8,900 10,200

2 9,200 7,850

3 8,850 8,750

(a) Calculate the IRR for each project

(b) What is the crossover rate for these two projects?

(c) What is the NPV of Projects X and Y at discount rates of 4%, 15%, and 25%?

(d) Draw both NPV profiles on the same graph and interpret your results

2

3

4

Answer 1

1.Statement showing cummulative cash flow

Year	Cash flows($)	Cummulative cash flows($)
0	-3900	-3900
1	1500	-2400
2	1400	-1000
3	1800	800
4	1800	2600

Payback period=A+(B/C)

Where,

A=it is the last period (year) number with a negative cummulative cash flows

B=It is the the value without negative of cummulative net cash flow at the end of period A

C=It is the total cash inflow at the during the period following period A

Thus,Payback period

=2+(1000/1800)

=2+.5555

=2.56

Thus payback period is 2.56 period