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Internal Rate of Return, Payback Period & NPV

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An investment of $83 generates after-tax cash flows of $50.00 in Year 1, $70.00 in Year 2, and $133.00 in Year 3. The required rate of return is 20 percent. The net present value is

Mavis, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?
Year Project

0 ($11,368,000)

1 $ 2,127,590

2 $ 3,787,552

3 $ 3,125,650

4 $ 4,115,899

5 $ 4,556,424

Lorne inc is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $817,500, and $1,215,000 over the next three years. What is the payback period for this project?

Lower Inc. is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project?

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Solution Summary

The solutions depict the steps to calculate NPV and payback period as per the requirements. Attached as Excel.

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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