A company has a project available with the following cash flows:

Year 0 - $-35510

Year 1 - $12630

Year 2 - 14740

Year 3 - 19800

Year 4 - 11120

If the required return for the project is 8.1 percent, what is the project's NPV?

$12,605.06

NPV = −$35,510 + $12,630/(1 + .081) + $14,740/(1 + .081)2 + $19,800/(1 + .081)3 + $11,120/(1

+ .081)4NPV = $12,605.06

Blinding Light Co. has a project available with the following cash flows:

Year 0 - $-35,550

Year 1 - 7,880

Year 2 - 9,450

Year 3 - 13,350

Year 4 - 15,490

Year 5 - 10,160

What is the projects IRR?

16.23%
0 = −$35,550 + $7,880/(1 + IRR) + $9,450/(1 + IRR)^2 + $13,350/(1 + IRR)^3 + $15,490/(1 + IRR)^4 +
$10,160/(1 + IRR)^5

IRR = .1623, or 16.23%

There is a project with the following cash flows :

Year 0 - $-26,100

Year 1 - 7,700

Year 2 - 8,050

Year 3 - 7,450

Year 4 - 5,800

What is the payback period?

3.50 years

Amount short after 3 years = $26,100 − 7,700 − 8,050 − 7,450

Amount short after 3 years = $2,900 Payback period = 3 + $2,900/$5,800

Payback period = 3.50 years

Terms in this set (45)

Original

A company has a project available with the following cash flows:

Year 0 - $-35510
Year 1 - $12630

Year 2 - 14740

Year 3 - 19800

Year 4 - 11120

If the required return for the project is 8.1 percent, what is the project's NPV?

$12,605.06

NPV = −$35,510 + $12,630/(1 + .081) + $14,740/(1 + .081)2 + $19,800/(1 + .081)3 + $11,120/(1

+ .081)4NPV = $12,605.06

Blinding Light Co. has a project available with the following cash flows:

Year 0 - $-35,550

Year 1 - 7,880

Year 2 - 9,450

Year 3 - 13,350

Year 4 - 15,490

Year 5 - 10,160

What is the projects IRR?

16.23%

0 = −$35,550 + $7,880/(1 + IRR) + $9,450/(1 + IRR)^2 + $13,350/(1 + IRR)^3 + $15,490/(1 + IRR)^4 +

$10,160/(1 + IRR)^5
IRR = .1623, or 16.23%

There is a project with the following cash flows :

Year 0 - $-26,100

Year 1 - 7,700

Year 2 - 8,050

Year 3 - 7,450

Year 4 - 5,800

What is the payback period?

3.50 years

Amount short after 3 years = $26,100 − 7,700 − 8,050 − 7,450

Amount short after 3 years = $2,900 Payback period = 3 + $2,900/$5,800

Payback period = 3.50 years

Carland, Inc., has a project available with the following cash flows. If the required return for the project
is 7.6 percent, what is the project's NPV?

Year 0: $-225,000

Year 1: 62,700

Year 2: 87,100

Year 3: 116,300

Year 4: 69,700
Year 5: -11,700

$15,743.67

NPV = −$255,000 + $62,700/(1 + .076) + $87,100/(1 + .076)^2 + $116,300/(1 + .076)^3 + $69,700/(1

+ .076)^4 − $11,700/(1 + .076)^5

NPV = $15,743.67

A project has a discount rate of 15.5 percent, an initial cost of $109,200, an inflow of $56,400 in Year 1
and an inflow of $75,900 in Year 2. Your boss requires that every project return a minimum of $1.06 for
every $1 invested. Based on this information, what is your recommendation on this project?

Reject the project because the PI is .97

NPVInflows = $56,400/1.155 + $75,900/1.155^2

NPVInflows = $105,726.65

PI = 105,726.65/109,200

PI = .97

A venture will provide a net cash inflow of $57,000 in Year 1. The annual cash flows are projected to
grow at a rate of 7 percent per year forever. The project requires an initial investment of $739,000 and
has a required return of 15.6 percent. The company is somewhat unsure about the growth rate
assumption. At what constant rate of growth would the company just break even?

7.89%

NPV = 0 = −$739,000 + $57,000/(.156 − g)g = .0789, or 7.89%