Question

(payback period, net present value, profitability index, and internal rate of return calculations) you are considering a project with an initial cash outlay of __________ and expected cash flows of __________ at the end of each year for six years. The discount rate for this project is ________ percent.

a. What are the project's payback and discounted payback periods?
b. What is the project's NPV?
c. What is the project's PI?
d. What is the project's IRR?
e. The payback period of the project is ________ years. (Round to two decimal places.)

Answer 1

The question pertains to calculating the payback time, net present value (NPV), profitability index (PI), and internal rate of return (IRR) for a financial investment in insulation, using provided cost and energy data. However, specific details needed to provide a complete answer are missing from the question, such as the energy savings the insulation would offer and the exact financial figures for the project.

Step-by-step explanation:

To calculate the simple payback time for an investment in extra insulation, you need to divide the total cost of the insulation by the annual energy savings. To find the energy savings, multiply the difference in temperature (ΔT), by the number of days in the heating season, and then by the energy cost per unit (e.g., per million joules).

However, the provided information is incomplete to give a precise answer, as the question refers to an exercise (14.41) that is not included, which likely contains details necessary for calculations such as the savings in joules that the insulation would provide.

For calculating present values (PV), the formula is PV = FV / (1 + r)^n, where FV is the future value, r is the discount or interest rate, and n is the number of periods. In corporate finance, evaluations like the net present value (NPV), profitability index (PI), and internal rate of return (IRR) are critical in assessing the viability of a project.

The NPV is the sum of the present values of all cash flows associated with a project, PI is the ratio of the present value of future cash flows to the initial investment, and IRR is the discount rate that makes the NPV of all cash flows from a project equal to zero.

Since the actual figures for initial outlay, expected cash flows, and the discount rate are not provided in the question, the exact calculations for payback period, NPV, PI, and IRR cannot be made.

To provide a 500 word answer, more specific data needs to be supplied. The answer for part (e) would typically follow these calculations and be the number of years it takes for the project's cash flows to pay back the initial outlay, rounded to two decimal places.