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:
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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