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    Calculate: The Market Rate of Return and Payback Period

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    Your employer, hates the company's current telephone system. By investing $60,000 in a new phone system, he thinks that he can improve revenue through fewer misdirected sales inquiry calls, resulting in higher sales. Through analysis, he has determined that improvement to cash flow for the company will be $18,000 in years one through four. Thus, the time horizon is four years and you will get the benefit at the end of the year.

    Your company can get 10% on invested funds (the market rate of return).
    Calculate the NPV.
    What is the project's payback period?

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    Solution Preview

    First write the cash flow:
    Year.............Cash Flow
    0...................-60000
    1...................18000
    2....................18000
    3....................18000
    4....................18000

    For payback period, calculate ...

    Solution Summary

    A solution that calculates the net present value and the pay back period of a company's project to invest in a new phone system and its effect on the company.

    $2.19

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