Q4 Allison is considering an investment project for her firm that has the follow
ID: 2776361 • Letter: Q
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Q4 Allison is considering an investment project for her firm that has the following expected cash flows and required return. t Cash flow 0 $ (50,000) 1 15,000 2 15,000 3 15,000 4 10,000 5 10,000 required return on the project is 8.5% Compute a) (Simple) payback period (PB) (show balance after each year) b) Discounted payback period (DPB) (show balance after each year) c) Net Present Value (NPV) d) Internal rate of return (IRR) Q4 Allison is considering an investment project for her firm that has the following expected cash flows and required return. t Cash flow 0 $ (50,000) 1 15,000 2 15,000 3 15,000 4 10,000 5 10,000 required return on the project is 8.5% Compute a) (Simple) payback period (PB) (show balance after each year) b) Discounted payback period (DPB) (show balance after each year) c) Net Present Value (NPV) d) Internal rate of return (IRR)Explanation / Answer
Statemnet showing Cash flows Particulars Time PVf@8.5% Amount PV Cash Outflows - 1.00 (50,000.00) (50,000.00) PV of Cash outflows (50,000.00) Cash inflows 1.00 0.9217 15,000.00 13,824.88 Cash inflows 2.00 0.8495 15,000.00 12,741.83 Cash inflows 3.00 0.7829 15,000.00 11,743.62 Cash inflows 4.00 0.7216 10,000.00 7,215.74 Cash inflows 5.00 0.6650 10,000.00 6,650.45 PV of Cash Inflows 52,176.53 NPV 2,176.53 Statement showing Payback period Time Cash Flows Cumulative Cash flows 1.00 15,000.00 15,000.00 2.00 15,000.00 30,000.00 3.00 15,000.00 45,000.00 4.00 10,000.00 55,000.00 5.00 10,000.00 65,000.00 Paybackperiod = 3 + 5000/10,000 Paybackperiod = 3.5 Years Statement showing Discounted Payback period Time Cash Flows Cumulative Cash flows 1.00 13,824.88 13,824.88 2.00 12,741.83 26,566.71 3.00 11,743.62 38,310.34 4.00 7,215.74 45,526.08 5.00 6,650.45 52,176.53 Discounted Payback period = 4 + 4473.92/6650.45 Discounted Payback period = 4.67 Years Statemnet showing Cash flows Particulars Time PVf@10% Amount PV Cash Outflows - 1.00 (50,000.00) (50,000.00) PV of Cash outflows (50,000.00) Cash inflows 1.00 0.9091 15,000.00 13,636.36 Cash inflows 2.00 0.8264 15,000.00 12,396.69 Cash inflows 3.00 0.7513 15,000.00 11,269.72 Cash inflows 4.00 0.6830 10,000.00 6,830.13 Cash inflows 5.00 0.6209 10,000.00 6,209.21 PV of Cash Inflows 50,342.13 NPV 342.13 Statemnet showing Cash flows Particulars Time PVf@11% Amount PV Cash Outflows - 1.00 (50,000.00) (50,000.00) PV of Cash outflows (50,000.00) Cash inflows 1.00 0.9009 15,000.00 13,513.51 Cash inflows 2.00 0.8116 15,000.00 12,174.34 Cash inflows 3.00 0.7312 15,000.00 10,967.87 Cash inflows 4.00 0.6587 10,000.00 6,587.31 Cash inflows 5.00 0.5935 10,000.00 5,934.51 PV of Cash Inflows 49,177.54 NPV (822.46) IRR = 10% + 342.13*1%/1164.59 IRR = 10.29% Approx
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