Question

Your company is considering an expansion into a new product line. The project cash flows are as follows:

       Year                     Project A                    

           0                     -$60,000                    

           1                         44,000                        

           2                          20,000                         

           3                          14,000             

      The required return for this project is 10%.

        

What is the NPV for the project?

What is the IRR for the project?

What is the payback period for the project?

What is the Profitability Index (PI) for the project?

Answer 1

Year	CF
0	$-60,000.00
1	$ 44,000.00
2	$ 20,000.00
3	$ 14,000.00
IRR	18%
NPV	$   7,047.33

Year	CF	Cumulative CF
0	$-60,000.00	$-60,000.00
1	$ 44,000.00	$-16,000.00
2	$ 20,000.00	$   4,000.00
3	$ 14,000.00	$ 18,000.00
IRR	18%
NPV	$   7,047.33
Payback	1.80 years
PI	1.12

Profitability =(NPV+Initial Investment)/Initial investment
=(7047.33+60000)/60000=1.12