(Part 1) Using a 4.5% discount rate, calculate the Net Present Value, Payback, P
ID: 2773516 • Letter: #
Question
(Part 1)
Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support your answer.
Project 1
Initial Invest=$490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
Project 2
Initial Invest=$970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10
Project 3
Initial Invest=$820,000, Cahs inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10
(Part 2)
Assuming a budget of $1,100,000 what are your recommendations for the three projects in the above problem? Explain.
Assuming a budget of $2,200,000 what are your recommendations for the above problem? Explain.
Explanation / Answer
Using a 4.5% discount rate, calculate the Net Present Value, Payback, Profitability Index, and IRR for each of the investment projects below (note, the inflows are for each year). Based on your calculations rank the projects and support your answer.
Project 1
Initial Invest=$490,000, Cash inflows of $100,000 for years 1-5 and $50,000 for years 6-10.
NPV = -490000 + 100000*(1-(1+4.5%)^-5)/4.5% + (50000*(1-(1+4.5%)^-5)/4.5% )*(1+4.5%)^-5
NPV = $ 125,134.75
Payback Period = Initial Invest/Annual Cash Inflow
Payback Period = 490000/100000
Payback Period = 4.9 Years
Profitability Index = (1+ NPV/Initial Investment)
Profitability Index = (1+ 125134.75/490000)
Profitability Index = 1.2554
IRR = irr(values)
IRR = irr({-490000,100000,100000,100000,100000,100000,50000,50000,50000,50000,50000})
IRR = 10.38%
Project 2
Initial Invest=$970,000, Cash inflows of $400,000 for years 1-3, $0 for years 4-7 and $250,000 for years 8-10
NPV = -970000 + 400000*(1-(1+4.5%)^-3)/4.5% + (250000*(1-(1+4.5%)^-3)/4.5% )*(1+4.5%)^-7
NPV = $ 634590.1
Payback Period = Initial Invest/Annual Cash Inflow
Payback Period = 970000/400000
Payback Period = 2.425Years
Profitability Index = (1+ NPV/Initial Investment)
Profitability Index = (1+ 634590.1/970000)
Profitability Index = 1.6542
IRR = irr(values)
IRR = irr({-970000,400000,400000,400000,0,0,0,0,250000,250000,250000})
IRR = 20.83%
Project 3
Initial Invest=$820,000, Cahs inflows of $300,000 for years 1-5, $0 for years 6-9 and $100,000 for year 10
NPV = -820000 + 300000*(1-(1+4.5%)^-5)/4.5% + 100000*(1+4.5%)^-10
NPV = $ 561,385.79
Payback Period = Initial Invest/Annual Cash Inflow
Payback Period = 820000/300000
Payback Period = 2.73 Years
Profitability Index = (1+ NPV/Initial Investment)
Profitability Index = (1+ 561,385.79/820000)
Profitability Index = 1.6846
IRR = irr(values)
IRR = irr({-820000,300000,300000,300000,300000,300000,0,0,0,0,100000})
IRR = 24.86%
Answer
Project Rank as per NPV Rank as per Payback Rank as per Profitable Index Rank as per IRR Project 1 3 3 3 3 Project 2 1 1 2 2 Project 3 2 2 1 1Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.