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Normal Body Text 1 No Spc.. 1Table. Heading 1 Heaing 2 Tile Font Paragraph Styles Problem 6(4 points) Mr. Graziano Pelle, the capital budgeting director of Giovinco Corporation(GC), is evaluating a five year project, which will require an initial investment of $98,000 today. The expected end-of-year cash flows of the project are as follows: Year 1 Year 2 Year 3 Year 4: Year 5: $40,000 $29,000 $30,000 $10,000 $11,000 weighted average cost of capital of this project is 13%, and both target payback and discounted payback is 4 years. a. b. c. d. What is the IRR of this project? What is the NPV of this project? What is discounted payback of this project? What is the payback of this project?

Explanation / Answer

question d has been answered before question c in below table

Discount Rate 0.13 Year 0 1 2 3 4 5 -98000 40000 29000 30000 10000 11000 a) NPV using Excel function=NPV(Discount rate, Cash flows)- Investment ($6,995.46) b) IRR using excel function 9% Year 0 1 2 3 4 5 -98000 40000 29000 30000 10000 11000 Cumulative Cash flow -98000 -58000 -29000 1000 11000 22000 d) Pay Back period 2.97 Discounted Cash flow -98000 35398.23 22711.25 20791.5 6133.187 5970.359 Cumulative Discounted Cash flow -98000 -62601.8 -39890.5 -19099 -12965.8 -6995.46 c) Discounted Payback There is no period for discounted payback.

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