A project will produce cash inflows of $1,750 a year for four years. The project

Question

A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 13.75%? What is the IRR for the project? What is the PI for the project? What is the payback period for the project? (If the project never pays back then enter 0 for the answer). What is the discounted payback period for the project? (If the project never pays back then enter 0 for the answer). Please HELP! Will give instant feedback and great ratings for correct answer!!!!!!!!!!!!!!!!!

Explanation / Answer

We have CF0 = -10600 CF1 to CF4 = 1750 CF5 = 8500 Rate =13.75% So NPV = NPV(Rate,CF1..CF4) + CF0 = NPV(13.75%,1750,1750,1750,1750,8500) -10600 ie NPV = $(1,011.40) What is the IRR for the project? IRR = IRR(CFs) = IRR(-10600,1750,1750,1750,1750,8500) = 10.63% What is the PI for the project? PI = PV of Future CFs/Initial Investment = NPV(13.75%,1750,1750,1750,1750,8500)/10600 = $9,588.60/10600 = 0.90 What is the payback period for the project? (If the project never pays back then enter 0 for the answer). We have 10600 - (1750+1750+1750+1750) = 3600 So PB happens in Y5 = 4 + (8500-3600)/8500 = 4.58 yrs What is the discounted payback period for the project? (If the project never pays back then enter 0 for the answer) As PV of CF is $9,588.60, Disc Payback will not happen. SO ans is '0'

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