Answer:
1. 6.52 years
IRR = 10.93%
NPV = $9,851.30
4. yes
Explanation:
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows
Payback period = Amount invested / cash flow
$215,000 / $33,000 = 6.52 years
Internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested
Net present value is the present value of after tax cash flows from an investment less the amount invested.
NPV and IRR can be calculated using a financial calculator
Cash flow in year 0 = $-215,000
Cash flow each year from year 1 to 12 = $33,000
I = 10%
NPV = $9,851.30
IRR = 10.93%
The project is acceptable because the IRR is greater than the cost of capital
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.
and the NPV is positive
