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Capital Budgeting Parameters

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?

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.

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