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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The number of years in which the money is in the account is 6 years.
<h3>What is simple interest?</h3>Simple interest denotes the amount of payment that is received or paid by a person in return for anything pledged or given a loan.
The interest computed on the principal amount for a specified duration of time and rate of interest is called simple interest.
The formula of simple interest:
Where, (P) stands for principal, (r) for interest rate, and (t) is for the time period.
<u>Computation </u><u>of a number of years:</u>
According to the given information,
P=$500,
r=7.5%,
t=?
SI= $225
Now, substitute the given values in the above formula, we have:
Therefore, the number of years is 6 years.
To learn more about the simple interest, refer to:
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