Answer NPV, IRR & Payback Period

Answer

11. A)           NPV                       = -$10,000 + $2,000 (P/A,15,20)

                NPV                       = -$10,000 + $2,000 (6.2593)

                NPV                       = -$10,000 + $12,518.6

                NPV                       = -$2,518.6

B)            NPV                       = -$25,000 + $3,000 (P/A,15,20)

                NPV                       = -$25,000 + $3,000 (6.2593)

                NPV                       = -$25,000 + $18,777.9

                NPV                       = -$6,222.1

C)            NPV                       = -$30,000 + $5,000 (P/A,15,20)

                NPV                       = -$30,000 + $5,000 (6.2593)

                NPV                       = -$30,000 + $31,296.5

                NPV                       = -$1,296.5

  2. A)                    NPV                       = -$18,250 + $4,000 (P/A,10,7)

NPV                       = -$18,250 + $4,000 (4.8684)

NPV                       = -$18,250 + $19,473.6

NPV                       = $1,223.6

 B)            IRR (NPV=0)                      

                         0                              = -$18,250 + $4,000 (P/A,i,7)

                                             $18,250 = $4,000 (P/A,i,7)

                                (P/A,i,7)               = $18,250/$4,000

                                (P/A,i,7)               = 4.5625

                                IRR                         ≈ 12%

  C) Accept the project because NPV (+) and IRR > 10%

  3.   A)           PP (M)                  = 2 years + ($8,500/$10,000)*1 year

PP (M)                 = 2.85 years

PP (N)                   =2 years + ($6,000/$9,000)*1 year

PP (N)                   = 2.67 years

      B)            NPV (M)              = -$28,500 + $10,000 (P/A,15,4)

                      NPV (M)              = -$28,500 + $10,000*2.855

                      NPV (M)              = -$28,500 + $28,550

                      NPV (M)              = $50

                               

NPV (N)            = -$27,000 + $11,000 (P/F,15,1) + $10,000 (P/F,15,2) + $9,000 (P/F,15,3) + 8,000 (P/F,15,4)

NPV (N)            = -$27,000 + $11,000*0.8696 + $10,000*0.7562 + $9,000*0.6575

   + 8,000*0.5718

                        NPV (N)          = $619.5

C)            IRR (M)

                0                   =-$28,500 + $10,000 (P/A,i,4)

                                (P/A,i,4)    = 2,85   

                                IRR (M)    ≈ 15%

                                IRR (N)

NPV                       = -$27,000 + $11,000 (P/F,20,1) + $10,000 (P/F,20,2) + $9,000 (P/F,20,3)      + 8,000 (P/F,20,4)

NPV                       = -$27,000 + $11,000*0.8333 + $10,000*0.6945 + $9,000*0.5787 + 8,000*0.4823

NPV                       = -$1,822

IRR (N)                  = 16.27%

                D)           Choose N because NPV and IRR are bigger than M