Question

The following cash flows are given for a project

C0 = -9000 C1= +9000 C2= +18000

The NPV of the project at a discount rate of 50% is:

A.) 18,000 B.) 5,000 C.) 11,000 D.) zero or E.) none of these

The IRR for this project is:

A.) 10% B.) 25% C.) 50% D.) 100% or E.) none of these

The payback period for this project is:

A.) zero years B.) one year C.) two years D.) three years or E.) none of these.

So I’m pretty sure the NPV is B.) 5,000 and the IRR is D.) 100% but I cannot figure out the payback period can someone please help.

Answer 1

Answer is B. $5000
Net Present value:
Year	Cashflows	PVF @50%	Present values
0	-9000	1	-9000
1	9000	0.666667	6000
2	18000	0.444444	8000
NPV			5000
Answer is D. 100%
Year	Cashflows	PVF @100%	Present values
0	-9000	1	-9000
1	9000	0.5	4500
2	18000	0.25	4500
NPV			0
Hence, IRR is 100%
Answer is B. One year
Payback period:
Year	Cashflows	Cumulative cash flows
0	-9000	-9000
1	9000	0
2	18000	18000
As, the cumulative cashflows is 0 at Year1.
Therefore,
payback period is 1 year