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    Capital Budgeting Parameters

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    If the intital investment is $6.45 M and the net operating cash flow is 2.45 M for 5 years at a 8% cost of capital what is the:

    Payback?
    Discounted Payback Rate?
    NPV?
    Profitability Index?
    IRR?
    MIRR?

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    https://brainmass.com/business/capital-budgeting/capital-budgeting-parameters-254007

    Solution Preview

    Please refer attached file for better clarity of formulas and tables.
    Solution:

    Payback?
    Since there is constant oprating cash flow, Payback period is given by
    Payback Period=Initial investment/operating cash flow=2.63 years

    Discounted Payback Rate?
    Year Cash flow PV factor PV of Cash flow Cumulative PV
    @8% Cash Flow*PVF
    1 2.45 0.9259 2.2685 2.2685
    2 2.45 0.8573 2.1005 4.3690
    3 2.45 0.7938 1.9449 6.3139
    4 2.45 0.7350 1.8008 8.1147
    5 2.45 ...

    Solution Summary

    Solution depicts the methodology to calculate Payback Period, Discounted Payback Rate, NPV, Profitability Index, IRR and MIRR for the given investment proposal.

    $2.19

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