Question

What is the payback period for each project?

What is the IRR for each project?

What is the NPV for each project?

*Interest rate for each project is 10%

Cash Flows Project A (S) Project B ($) Project C (S) -100 50 Year 0 (today) -300 These are the initial outlays. -400 1 150 400 2 300 150 50

Answer 1

1. Payback period: it is the amount of time required to recover the original cost of the project.

Project A = (150/150 )+ (300/150) = 1.5 years.

Project B = (50/50) + (50/150) = 1.33 years.

Project C = (400/400) = 1 year.

2.
NPV = present value of cash inflow- the present value of cash outflow.

Dicount rate = 10%

NPV of project A = 84.30
NPV of project B = 69.42
NPV of project C = 4.96

3. IRR: It is the discount rate at which the present value of projects cash outflows (cost) is equal to the present value of projects cash inflow.

IRR of Project A = 28.07%
IRR of Project B = 50%
IRR of Project C = 11.24%

A 1S0 300 + 3ల CI-IO) 84. 30 Clua 3 50 C1-10) 69.42 69-42 loo + Culos 400 S0 A00 4.96 CI.ID) + Ci10 IRA Of Praject 300 IRR- a80o ty 3o0 150 A: C1+1RE) CI+IRR) Dy. = 100 IRR + S0 C1+IRR) Ci+IRR) 50 400 IRR= I1-297% 400 CI+IRA CitiRR)