#9) Fairfax Paint is evaluating a project that would cost 7,225 dollars today. T
ID: 2784540 • Letter: #
Question
#9) Fairfax Paint is evaluating a project that would cost 7,225 dollars today. The project is expected to have the following other cash flows: 2,751 dollars in 1 year, 2,849 dollars in 2 years, and 2,469 dollars in 4 years. The internal rate of return for the project is 5.07 percent and the cost of capital for the project is 9.36 percent. What is the net present value of the project?
#10) Fairfax Pizza is evaluating a project that would cost 99,000 dollars today. The project is expected to have the following other cash flows: 28,100 dollars in 1 year, 24,700 dollars in 2 years, 56,341 dollars in 3 years, and 9,900 dollars in 4 years. The cost of capital of the project is 6.18 percent. What is the payback period for the project? Round your answer to 2 decimal places (for example, 2.89, 14.70, or 6.00).
Explanation / Answer
Answer 9.
Cash flows:
Year 0 = -$7,225
Year 1 = $2,751
Year 2 = $2,849
Year 4 = $2,469
Cost of Capital = 9.36%
Net Present Value = -$7,225 + $2,751/1.0936 + $2,849/1.0936^2 + $2,469/1.0936^4
Net Present Value = -$601.09
So, Net Present Value of the project is -$601.09
Answer 10.
Cash flows:
Year 0 = -$99,000
Year 1 = $28,100
Year 2 = $24,700
Year 3 = $56,341
Year 4 = $9,900
Company recovered $52,800 ($28,100 + $24,700) in first 2 years and remaining $46,200 will be recover in 3rd year
Payback Period = 2 + $46,200/$56,341
Payback Period = 2.82 years
So, Payback period of the project is 2.82 years
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