Question

A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 13.75%?

What is the IRR for the project?
What is the PI for the project?
What is the payback period for the project?
(If the project never pays back then enter 0 for the answer).
What is the discounted payback period for the project? (If the project never pays back then enter 0 for the answer).

Answer 1

Follows are the solution to the given choices:

Step-by-step explanation:

`\to CF_0 = -10600\\\\\to CF_1 to\ CF_4 = 1750\\\\\to CF_5 = 8500\\\\\to Rate =13.75 \%\\\\`

calculating NPV:

`NPV = NPV(Rate,CF_1\ to \ CF_4) + CF_0`

`= NPV(13.75 \% ,1750,1750,1750,1750,8500) -10600\\`

`= \$ (1,011.40)`

Calculating the IRR for the project:

`IRR = IRR(CFs) \\\\`

`= IRR(-10600,1750,1750,1750,1750,8500)\\\\ = 10.63 \%`

Calculating the PI for the project:

`PI = \frac{\text{PV of Future CFs}}{\text{Initial Investment}}`

`= (NPV(13.75 \% ,1750,1750,1750,1750,8500))/(10600)`

`= (\$ 9,588.60)/(10600)\\\\ = 0.90`

So what's the plan payback time? (if it's never given directly by the venture, enter 0 for the reply).

`\to 10600 - (1750+1750+1750+1750) = 3600\\\\`

The PB occurs in
`Y_5 = 4 + ((8500-3600))/(8500)\\\\`

`= 4 + ((4900))/(8500)\\\\ = 4 + ((49))/(85)\\\\ = 4.58 \ yrs`

The program's payback method, (if it's never paid back by the project, enter 0 for the answer)

Because CF's PV is $9,588.60, Disc Payback won't happen. '0' is the answer.