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Calculate payback period, discount rate, NPV, IRR

Please see attached file.

As director, you are reviewing three potential investment projects with the following cost and cash flow projections.

Cash Flow Project 1 Project 2 Project 3
Investment Cost ($400,000) ($375,000) ($400,000)
Year One Cash Flow $200,000 $75,000 $50,000
Year Two Cash Flow $50,000 $75,000 $120,000
Year Three Cash Flow $75,000 $85,000 $140,000
Year Four Cash Flow $50,000 $225,000 $125,000
Year Five Cash Flow $125,000 $60,000 $125,000

1. What is the Payback Period for each project?

2. If the discount rate for all three projects is 10.5%, What is the Net Present Value for each project?

3. What is the Internal Rate of Return (IRR) for each project?

4. If your capital investment budget of $500,000 will only allow selection of one project (making the projects now mutually exclusive), which project is best to fund?

Solution Summary

As director, you are reviewing three potential investment projects with the following cost and cash flow projections.

Cash Flow Project 1 Project 2 Project 3
Investment Cost ($400,000) ($375,000) ($400,000)
Year One Cash Flow $200,000 $75,000 $50,000
Year Two Cash Flow $50,000 $75,000 $120,000
Year Three Cash Flow $75,000 $85,000 $140,000
Year Four Cash Flow $50,000 $225,000 $125,000
Year Five Cash Flow $125,000 $60,000 $125,000

1. What is the Payback Period for each project?

2. If the discount rate for all three projects is 10.5%, What is the Net Present Value for each project?

3. What is the Internal Rate of Return (IRR) for each project?

4. If your capital investment budget of $500,000 will only allow selection of one project (making the projects now mutually exclusive), which project is best to fund?

$2.19