Question

# 1. What is the payback period for the following set of cash flows? Year Cash Flow...

1.

 What is the payback period for the following set of cash flows?
 Year Cash Flow 0 −\$ 8,000 1 2,800 2 1,000 3 2,900 4 2,100

Multiple Choice

• 3.57 years

• 3.80 years

• 3.64 years

• 3.92 years

• 3.62 years

2.

 An investment project provides cash inflows of \$650 per year for 8 years.
 a. What is the project payback period if the initial cost is \$3,250?

 b. What is the project payback period if the initial cost is \$3,575?

 c. What is the project payback period if the initial cost is \$5,850?

3.

 For the following set of cash flows,

 Year Cash Flow 0 –\$8,000 1 4,800 2 3,500 3 5,200

 a. What is the NPV at a discount rate of 0 percent?

 b. What is the NPV at a discount rate of 15 percent?

 c. What is the NPV at a discount rate of 23 percent?
 d. What is the NPV at a discount rate of 28 percent?

 Q1. Year Cashflowws Cumulative CF 0 -8000 -8000 1 2800 -5200 2 1000 -4200 3 2900 -1300 4 2100 800 Payback = 3yrs + 1300/2100 = 3.62 yrs Answer is 3.62 yrs Q2. Req a: Payback period= Investment / Annual cashflows Payback = 3250 /650 = 5yrs Req b: Payback = 3575/650 = 5.50 yrs Reqc Payback = Nil As the investment cannot give cashflows beyond 8yrs

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