Question

Q1.

Babcock Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.
WACC:		13%
Year:		0			1		2		3
Cash flows:		-$1,250			$400		$500		$600

Q2.

Garvin Enterprises is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.
WACC:		12%
Year:		0			1	2		3
Cash flows:		-$1,100			$550	$550		$550

Answer 1

1). NPV = PV of Cash Inflows - PV of Cash Outflows

= [$400/1.13] + [$500/1.13²] + [$600/1.13³] - $1,250

= $353.98 + $391.57 + $415.83 - $1,250 = -$88.61

2).

Year	CFs	Discounted CFs @ 12%	Cumulative Discounted CFs
0	-1,100	-1,100	-1,100
1	550	491.07	-608.93
2	550	438.46	-170.47
3	550	391.48	221.01

Discounted Payback Period = Years before full recovery +

[Unrecovered Discounted Cfs at start of the year / Discounted CF during the year]

= 2 + [170.47/391.48] = 2 + 0.44 = 2.44 years