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    Capital Budgeting Models

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    Stern Associates is considering a project that has the following cash flow data. What is the project's payback?

    Year 0 1 2 3 4 5
    Cash flows -$1,100 $300 $310 $320 $330 $340

    If you have a 3 year loan that requires $1,000 payments each year at 7% annual interest rate what would be the present value of the loan?

    © BrainMass Inc. brainmass.com December 24, 2021, 10:20 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/calculating-payback-period-pv-loan-464719

    SOLUTION This solution is FREE courtesy of BrainMass!

    Please refer attached file for better clarity of tables.

    Problem 1

    Year Cash Flow Cumulative cash flow
    1 300 300
    2 310 610
    3 320 930
    4 330 1260
    5 340 1600

    We find that initial investment of $1100 is recovered in 4th year.
    Amount to be recovered in Year 4=1100-930=170
    Total cash flow in Year 4=330
    Payback period=3+(170/330)=3.515151515 Years

    Problem 2

    Periodic Payments=PMT=-1000 Cash outflow
    Rate of interest=RATE=7%
    Number of periods=NPER=3
    Type of payment=type=0 Assume year end payments
    Future value of loan=FV=0
    PV of loan amount=PV=?

    We can use PV function in Excel to get the desired value

    PV of loan amount=PV=$2,624.32 =PV(D21,D22,D20,D24,D23)

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 10:20 pm ad1c9bdddf>
    https://brainmass.com/business/capital-budgeting/calculating-payback-period-pv-loan-464719

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