19. What is the net present value of the following cash flows if the relevant di

Question

19. What is the net present value of the following cash flows if the relevant discount rate is 8.0 percent? Year Cash Flow $68.000 51.000 39.000 74.000 A. $1,482.15 B. $4,529.59 C. $23,507.19 D. $54.211.40 E. $71,402.02 20. The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: A. produce a positive annual cash flow B. produce a positive cash flow from assets. C. offset its fixed expenses. D. offset its total expenses. E. recover its initial cost.

Explanation / Answer

19) B. $     4,529.59 Working: Year Cash flow Discount factor Present Value a b c=1.08^-a d=b*c 0 $       -68,000      1.0000 $     -68,000.00 1             51,000      0.9259           47,222.22 2           -39,000      0.8573         -33,436.21 3             74,000      0.7938           58,743.59 Net Present Value             4,529.59 20) E. Recover its initial cost "Payback period" as its name suggests is the time period upto which it pays back. But payback what? It pays back Initial cost of investment. For example, a project has initial cost of $ 10,000 and annual cash inflows is $ 2,000. Then payabck period is 5 years as in 5 years project payback initial cost of $ 10,000.

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