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

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