Question

A project will produce cash inflows of $1,750 a year for four years. The project initially costs $10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of $8,500. What is the net present value of this project if the required rate of return is 13.75%?
What is the IRR for the project?
What is the PI for the project?
What is the payback period for the project?
(If the project never pays back then enter 0 for the answer).
What is the discounted payback period for the project? (If the project never pays back then enter 0 for the answer).

Answer 1

Answer:

Follows are the solution to the given choices:

Explanation:

$\to CF_0 = -10600\\\\\to CF_1 to\ CF_4 = 1750\\\\\to CF_5 = 8500\\\\\to Rate =13.75 \%$

calculating NPV:

   $NPV = NPV(Rate,CF_1\ to \ CF_4) + CF_0$

             $= NPV(13.75 \% ,1750,1750,1750,1750,8500) -10600$

             $= \ (1,011.40)$

Calculating the IRR for the project:

$IRR = IRR(CFs)$

        $= IRR(-10600,1750,1750,1750,1750,8500)\\\\ = 10.63 \%$

Calculating the PI for the project:

$PI = \frac{\text{PV of Future CFs}}{\text{Initial Investment}}$

     $= \frac{NPV(13.75 \% ,1750,1750,1750,1750,8500)}{10600}$

     $= \frac{\ 9,588.60}{10600}\\\\ = 0.90$

So what's the plan payback time? (if it's never given directly by the venture, enter 0 for the reply).  

$\to 10600 - (1750+1750+1750+1750) = 3600$

The  PB occurs in $Y_5 = 4 + \frac{(8500-3600)}{8500}$

                                   $= 4 + \frac{(4900)}{8500}\\\\ = 4 + \frac{(49)}{85}\\\\ = 4.58 \ yrs$

The program's payback method, (if it's never paid back by the project, enter 0 for the answer)  

Because CF's PV is $9,588.60, Disc Payback won't happen. '0' is the answer.