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    NPV (Discount Rate, Range of Values) +investment

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    Ngân Nguyễn
    a) The traditional payback period (PbP) is 3.6 years. b) The discounted payback period (DPB) is 4.84 years. c) Yes, the project should be purchased since the payback period (3.6 years) is less than the required rate of return (11% or 3.6 years). The discounted payback period of 4.84 years is also less than 5 years.

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    NPV (Discount Rate, Range of Values) +investment

    Uploaded by

    Ngân Nguyễn
    45 views7 pages
    a) The traditional payback period (PbP) is 3.6 years. b) The discounted payback period (DPB) is 4.84 years. c) Yes, the project should be purchased since the payback period (3.6 years) is less than the required rate of return (11% or 3.6 years). The discounted payback period of 4.84 years is also less than 5 years.

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    a) The traditional payback period (PbP) is 3.6 years. b) The discounted payback period (DPB) is 4.84 years. c) Yes, the project should be purchased since the payback period (3.6 years) is less than the required rate of return (11% or 3.6 years). The discounted payback period of 4.84 years is also less than 5 years.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    45 views7 pages

    NPV (Discount Rate, Range of Values) +investment

    Uploaded by

    Ngân Nguyễn
    a) The traditional payback period (PbP) is 3.6 years. b) The discounted payback period (DPB) is 4.84 years. c) Yes, the project should be purchased since the payback period (3.6 years) is less than the required rate of return (11% or 3.6 years). The discounted payback period of 4.84 years is also less than 5 years.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 7

    * NPV(discount rate, range of values)+investme

    Discount rate 7%

    Cash flows investment 1 Cash flows investment 2


    $ 100,000 $ 100,000
    $ 25,000 $ 20,000
    $ 25,000 $ 20,000
    $ 25,000 $ 20,000
    $ 25,000 $ 20,000
    $ 25,000 $ 20,000
    $ 25,000

    Net Present Value $ 222,841.93 Net Present Value $ 222,416.13


    es)+investment

    so accept 1
    RRR 5%

    Year Outflows Inflows Net Cash Discount Factor Discounted Cash


    0 $ (10,000) $ - $ (10,000) 1 $ (10,000)
    1 $ 1,500 $ 1,500 0.952380952380952 $ 1,429
    2 $ 1,500 $ 1,500 0.90702947845805 $ 1,361
    3 $ 1,500 $ 1,500 0.863837598531476 $ 1,296
    4 $ 1,500 $ 1,500 0.822702474791882 $ 1,234
    5 $ 1,500 $ 1,500 0.783526166468459 $ 1,175
    6 $ 1,500 $ 1,500 0.746215396636627 $ 1,119
    7 $ 1,500 $ 1,500 0.710681330130121 $ 1,066
    8 $ 1,500 $ 1,500 0.676839362028687 $ 1,015
    9 $ 1,500 $ 1,500 0.644608916217797 $ 967
    10 $ 1,500 $ 1,500 0.613913253540759 $ 921
    $ 5,000 NPV= $ 1,583
    Year 0 1 2 3 4
    Nominal Amount $ (1,000) $ 400 $ 400 $ 400 $ 400
    Discount rate (WACC) 20%
    Net Present Value 35
    Denominator 1.2 1.44 1.728 2.0736
    Present Value $ (1,000) $ 333 $ 278 $ 231 $ 193
    Net Present Value

    Internal Rate of Return 22%


    Year 0 1 2 3 4
    Nominal Amount $ (1,000) $ 400 $ 400 $ 600 $ 600
    Discount rate (WACC) 20%
    Net Present Value 35
    Denominator 1.2 1.44 1.728 2.0736
    Present Value $ (1,000) $ 333 $ 278 $ 347 $ 289
    Net Present Value

    Internal Rate of Return 32%


    Compute both the traditional payback period (PbP) and the discounted payback period (DPB) fo
    $270,000 if it is expected to generate $75,000 per year for five years? The firm's required rate of
    Should the project be purchased?

    Given Solution
    Year CF Year CF Balance
    0 $ (270,000) 0 $ (270,000) $ (270,000)
    1 $ 75,000 1 $ 75,000 $ (195,000)
    2 $ 75,000 2 $ 75,000 $ (120,000)
    3 $ 75,000 3 $ 75,000 $ (45,000)
    4 $ 75,000 4 $ 75,000 $ 30,000
    5 $ 75,000 5 $ 75,000 $ 105,000
    r 11% a) PbP/ PB 3.60 3.60
    way2 way1
    Find
    a) PbP/ PB ? c) Should the project be purchased?
    b) DPbP/ DPB ?
    c) Should the project be purchased?
    payback period (DPB) for a project that costs
    he firm's required rate of return is 11 percent.
    ed?

    Year CF PV of CF Balance
    0 $ (270,000) $ (270,000) $ (270,000)
    1 $ 75,000 $67,567.57 $ (202,432)
    2 $ 75,000 $60,871.68 $ (141,561)
    3 $ 75,000 $54,839.35 $ (86,721)
    4 $ 75,000 $49,404.82 $ (37,317)
    5 $ 75,000 $44,508.85 $ 7,192
    years b) DPbP/ DPB 4.84 years

    Yes PB < DPB

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