4. A project has an initial cost of $52,125, expected net cash inflows of $12,00

Question

4. A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 4 years, and a cost capital of 12%. What is the project

Explanation / Answer

NPV = -52125 + 12000/(1.11) + 12000/(1.1)^2+---+12000/(1.1^4) => NPV =-52125 + 12000/0.11*(1-1/(1.11)^4) => NPV = -$14,086.61 NPV is negative for IRR ,NPV =0 => -52125 + 12000/(1+r) + 12000/(1+r)^2+---+12000/(1+r)^4 =0 => IRR =-3.22% negative IRR payback period = 52125/12000 =4.343 years = 4.34 yrs(appx) as project period is only 4 years. so as we got 4.33 which is greater than 4. therfore there is no payback period

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