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3 years ago

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A potential CB project has the following cash flows: CF0 = -$500, CF1 = $300, CF2 = $200, CF3 = $150. WACC = 6%. Compute the fol

lowing(Show work):A. What is Payback Period:B. What is NPV:C. What is IRR:

1 answer:

lisov135 [29]3 years ago

4 0

Answer:

A. 2 years

B. 86.96

C. 16.46%

Explanation:

Payback period calculates the amount of time taken to recoup the initial investment made on a project.

The net present value substracts the present value of tax adjusted cash flows from the amount invested in the project.

Using the financial calculator to find the NPV:

Cash flow for year 0 = -500

Cash flow for year 1 = 300

Cash flow for year 2 = 200

Cash flow for year 3 = 150

Interest rate = 6%

NPV = $86.96

Internal rate of return is the discount rate that equates the tax adjusted cash flows from a project to the original amount invested.

Using the financial calculator to find the NPV:

Cash flow for year 0 = -500

Cash flow for year 1 = 300

Cash flow for year 2 = 200

Cash flow for year 3 = 150

Interest rate = 6%

IRR = 16.46%

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In this question, we are asked to calculate cash flows to Davis manufacturing given that debt is issues and equity is issued for a number of hour-week

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b. For a 50 - hour week and Debt is issued

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Cash Flow = EBIT x new share = $762,000 x 0.67307692307 = $512,885

KINDLY NOTE EBIT IS EARNINGS BEFORE INTEREST AND TAXES

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