You are evaluating an investment project, Project YY, with the following Cash
flows
period cash flow
0 -$ 100,000
1 43,798
2 43,798
3 43,798
Required: Calculate the following:
a. Payback period
b. Discounted payback period, assuming a 10% cost of capital
c. Discounted payback period, assuming a 14% cost of capital
d. Net present value, assuming a 14% cost of capital
1.) Payback Period.
This the amount of time it will take for the investment to recover the initial cost.
Year 1-43,798
Year 2-87,596;
Remaining amount to reach 100,000;
100,000-87596=12,404; express it as a fraction of year 3 cash flow to find years.
Total payback=2+0.28=2.28 years.
2.) Discounted payback@10%
By year 2, the balance will be:
-100,000+39,816+36,197=23,987
Express as fraction to find year.
Discounted payback Period=2+0.73=2.73 years
3. Discounted Payback period@14%
By year 2, the balance will be:
-100,000+38,419+33,701=27,880
Express as fraction to find year.
Discounted payback Period=2+0.64=2.64 years
4.) NPV@14%
Sum all present values for 3 above.
-100,000+38,419+33,701+29,562=1,682
NPV=1,682
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