Question

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?

Answer 1

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