Answer:
3.8 years
$2,189,324.56
20.33%
Explanation:
Payback period calculates how long it takes to recover the amount invested in a project from its cumulative cash flows.
Payback period = amount invested / cash flows = $7,125,000 / $1,875,000 = 3.8 years
Net present value is the present value of after tax cash flows from an investment less the amount invested.
Net present value can be calculated using a financial calculator
cash flow in year 0 = $-7,125,000.
cash flow each year from year 1 to 8 = $1,875,000
I = 12%
NPV = $2,189,324.56
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
IRR can be calculated using a financial calculator
cash flow in year 0 = $-7,125,000.
cash flow each year from year 1 to 8 = $1,875,000
I = 12%
IRR = 20.33%
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
