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    Calculate payback period, discount rate, NPV, IRR

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    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?

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    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

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