Verizon 9:06 AM instructure-uploads.s3.amazonaws.com 100%- Computing Net Present

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Verizon 9:06 AM instructure-uploads.s3.amazonaws.com 100%- Computing Net Present Value, Internal Rate of Return, and Payback Period-Questions 15-20 FasTrac is considering investing in a Project A and Project B which will require an initial investment of S16,000. Assume FasTrac requires a 11% annual return. The expected annual cash inflows are as follows: Project A 1$3,000 2 $4,000 3 $4,000 4 $4,000 5 S5,000 6 S3,000 7$2,000 8 $2,000 Project B S4,000 4,000 S4,000 $4,000 $4,000 4,000 S4,000 $4,000 15. What is the NPV for Project A? A. $1,735.85 B. S1,911.23 C. $2,235.67 D. $2,366.95 16. What is the IRR for Project A? A. 12.25% B. 14.47% C. 16.25% D. 18.30% 17. What is the payback period for Project A? A. 3.5 years B. 3.75 years C. 4.0 years D. 4.2 years 18. What is the NPV for Project B? A. $4,154.35 B. $4,425.93 C. $4,584.49 D. $4,750.35 19. What is the IRR for Project B37 A. 18.62% B. 16.58% C. 14.35% D. 12.10% 20. What is the payback period for Project B? A. 3.5 years

Explanation / Answer

Solution 15:

Net present value is the present value of all the cash outflow and inflow at a given point of time.

NPV of project A is as calculated below:

So, Answer is B 1,911.23

Project A Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Total Amount to be invested ($16,000) ($16,000) Cash Inflow 3,000 4,000 4,000 4,000 5,000 3,000 2,000 2,000 $27,000 Net cash flow (a) ($16,000) $3,000 $4,000 $4,000 $4,000 $5,000 $3,000 $2,000 $2,000 $11,000 Life 8 years Rate of Return is 11% Present Value factor (b) 1 0.90090 0.81162 0.73119 0.65873 0.59345 0.53464 0.48166 0.43393 Present Value of Net Cash flow (a*b) -16,000.00 2,702.70 3,246.49 2,924.77 2,634.92 2,967.26 1,603.92 963.32 867.85 1,911.23

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