Payback periods? average return on investment? internal rate of return? net pres
ID: 2734228 • Letter: P
Question
Payback periods?
average return on investment?
internal rate of return?
net present value (discounted cash flows)?
Year
0
1
2
3
4
5
initial investment to provide street accessibility
-950 000
annual lease income
62 000
62 000
62 000
62 000
62 000
increase in lobby bar sales net of costs
9 700
10 185
decrease in overhead costs
200 000
200 000
net cash gain from sale of bar equipment
80 000
0
0
0
0
less: depreciation on original investment
190 000
190 000
190 000
190 000
190 000
next taxable after depreciation
161 700
82185
82694,25
83228,983
83790,411
income taxes 25%
40 425
20546
20674
20807
20948
add: depreciation
190 000
190000
190000
190000
190000
add: decrease in working capital
70 000
0
0
0
0
net cash flow
-950 000
381 275
251639
252021
252422
252843
Year
0
1
2
3
4
5
initial investment to provide street accessibility
-950 000
annual lease income
62 000
62 000
62 000
62 000
62 000
increase in lobby bar sales net of costs
9 700
10 185
decrease in overhead costs
200 000
200 000
net cash gain from sale of bar equipment
80 000
0
0
0
0
less: depreciation on original investment
190 000
190 000
190 000
190 000
190 000
next taxable after depreciation
161 700
82185
82694,25
83228,983
83790,411
income taxes 25%
40 425
20546
20674
20807
20948
add: depreciation
190 000
190000
190000
190000
190000
add: decrease in working capital
70 000
0
0
0
0
net cash flow
-950 000
381 275
251639
252021
252422
252843
Explanation / Answer
Payback Period:
Payback Period = 3 + (65,065 / 252,422) = 3.26 Years
Return on investment = { (381,275+251,639+252,021+252,422+252,843) - 950,000 } / 950,000 = 46.34%
Average ROI = 46.34 / 5 = 9.27%
Calculation of IRR:
Calculation of Discounted Cash Flow:
Year Net Cash Flow Cumulative Net CF 0 (950,000) (950,000) 1 381,275 (568,725) 2 251,639 (317,086) 3 252,021 (65,065) 4 252,422 187,357 5 252,843 440,200Related Questions
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