Question

2. A project has the following cash flows

            C₀                    C₁                    C₂                    C₃       

                               ($1000)             $300                $400                $600

What is the project’s payback period?

Year	0	1	2	3
Cash Flow	($1000)	$300	$400	$600
Cumulative	($1000)	($700)	($300)	300

a. Calculate the projects NPV at 10%.

b. Calculate the project’s PI at 10%.

c. Calculate an IRR for the project in question 2

How would you answer a,b, and c in excel? I am getting 2,054.09 for NPV and not sure if that is correct.

Answer 1

Year	Cash flows = CF	Df = 1/(1+10%)^Year	Present Value = CF x Df
0	-1,000.00	1.000000	-1,000.00
1	300.00	0.909091	272.7273
2	400.00	0.826446	330.5785
3	600.00	0.751315	450.7889
		Total PV = NPV =	54.09

NPV = 54.09

PI or BC = PV of Cash Inflows / Investment = (272.7273+330.5785+450.7889)/1000 = 1.05

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NPV of discrete cash flows has to be done manually there is no excel formula, we can used excel to make tables and used formula at each node.

(I think you are adding initial investment to total PV of inflows = (272.7273+330.5785+450.7889) + 1000 = 2054.09 which is not correct… Do this = (272.7273+330.5785+450.7889) - 1000