Consider the following cash flows: Year 0 1 2 3 4 5 6 Cash Flow -$10,000 $2,200...

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Finance

Consider the following cash flows:
Year 0 1 2 3 4 5 6
Cash Flow -$10,000 $2,200 $3,300 $2,500 $2,500 $2,300 $2,100
A. Payback The company requires all projects to payback within 3years. Calculate the payback period. Should it be accepted orrejected?
B. Discounted Payback Calculate the discounted payback using adiscount rate of 10%. Should it be accepted or rejected?
C. IRR Calculate the IRR for this project. Should it be acceptedor rejected?
D. NPV Calculate the NPV for this project at a rate of 10%.Should it be accepted or rejected?
E. PI Calculate the Profitability Index (PI) for this project.Should it be accepted or rejected?
There are two common formulas for the profitability Index:
PV of Future Cash Flows/Initial Cost, accept if PI > 1.0 orNPV/ Initial Cost, accept if PI > 0

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4.2 Ratings (591 Votes)

A Payback Period Last Year with a Negative Cash Flow Absolute Value of negative Cash Flow in that year Total Cash Flow in the following year 3 2000 2500 380 Years The payback period is 380 Years Sincethe company requires all projects to payback within 3 years and See Answer

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Transcribed Image Text

Consider the following cash flows:Year 0 1 2 3 4 5 6Cash Flow -$10,000 $2,200 $3,300 $2,500 $2,500 $2,300 $2,100A. Payback The company requires all projects to payback within 3years. Calculate the payback period. Should it be accepted orrejected?B. Discounted Payback Calculate the discounted payback using adiscount rate of 10%. Should it be accepted or rejected?C. IRR Calculate the IRR for this project. Should it be acceptedor rejected?D. NPV Calculate the NPV for this project at a rate of 10%.Should it be accepted or rejected?E. PI Calculate the Profitability Index (PI) for this project.Should it be accepted or rejected?There are two common formulas for the profitability Index:PV of Future Cash Flows/Initial Cost, accept if PI > 1.0 orNPV/ Initial Cost, accept if PI > 0