2. A project has the following cash flows C 0 C 1 C 2 C 3 ($1000) $300 $400 $600
ID: 2657208 • Letter: 2
Question
2. A project has the following cash flows
C0 C1 C2 C3
($1000) $300 $400 $600
What is the project’s payback period?
Year
0
1
2
3
Cash Flow
($1000)
$300
$400
$600
Cumulative
($1000)
($700)
($300)
300
a. Calculate the projects NPV at 10%.
b. Calculate the project’s PI at 10%.
c. Calculate an IRR for the project in question 2
How would you answer a,b, and c in excel? I am getting 2,054.09 for NPV and not sure if that is correct.
Year
0
1
2
3
Cash Flow
($1000)
$300
$400
$600
Cumulative
($1000)
($700)
($300)
300
Explanation / Answer
Year
Cash flows = CF
Df = 1/(1+10%)^Year
Present Value = CF x Df
0
-1,000.00
1.000000
-1,000.00
1
300.00
0.909091
272.7273
2
400.00
0.826446
330.5785
3
600.00
0.751315
450.7889
Total PV = NPV =
54.09
NPV = 54.09
PI or BC = PV of Cash Inflows / Investment = (272.7273+330.5785+450.7889)/1000 = 1.05
------
NPV of discrete cash flows has to be done manually there is no excel formula, we can used excel to make tables and used formula at each node.
(I think you are adding initial investment to total PV of inflows = (272.7273+330.5785+450.7889) + 1000 = 2054.09 which is not correct… Do this = (272.7273+330.5785+450.7889) - 1000
Year
Cash flows = CF
Df = 1/(1+10%)^Year
Present Value = CF x Df
0
-1,000.00
1.000000
-1,000.00
1
300.00
0.909091
272.7273
2
400.00
0.826446
330.5785
3
600.00
0.751315
450.7889
Total PV = NPV =
54.09
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