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Financial management Use formula and get calculation in detail Project X costs $52,000 and is expected...

Financial management

Use formula and get calculation in detail

Project X costs $52,000 and is expected to generate net cashflows of $12,000 per year for 5 years, and its WACC is 12%.

  1. What is the project’s payback period?
  2. What is the NPV?
  3. What is the IRR?
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Answer #1
Year CashFlows(in $) Discounting Factor
[1/(1.12^year)]		 PV of Cash Flows
(cash flow*discounting factor)		 Cumulative Cashflow
(currecnt cash flow + all previous cashflows)
0 -52000 1 -52000
1 12000 0.892857143 10714.28571 12000
2 12000 0.797193878 9566.326531 24000
3 12000 0.711780248 8541.362974 36000
4 12000 0.635518078 7626.216941 48000
5 12000 0.567426856 6809.122269 60000
NPV =
Sum of above PVs		 -8742.685572 As Initial Outlay is 52000, it will be recoverd
in between year 4 & 5. Therefore, Payback
Period will be between 4th and 5th year.
Payback Period will be proportionate of 5th year
Payback Pariod = 4+[(52000-48000)/(60000-48000)]
IRR =
(By IRR Formula)		 5% Payback Year = 4.3333 years
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