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Calculating payback, discounted payback and IRR

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1. 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

A. 2.31 years
B. 2.56 years
C. 2.85 years
D. 3.16 years
E. 3.52 years

2. Oranges Inc. is considering a project that has the following cash flow and Cost of Capital data. What is the project's discounted payback?

Cost of Capital: 10.00%
Year 0 1 2 3 4
Cash flows -$950 $525 $485 $445 $405

A. 1.61 years
B. 1.79 years
C. 1.99 years
D. 2.22 years
E. 2.44 years

3. Maxwell Food is considering a project that has the following cash flow data. What is the project's IRR?

Year 0 1 2 3 4 5
Cash flows -$9,500 $2,000 $2,025 $2,050 $2,075 $2,100

A. 2.08%
B. 2.31%
C. 2.57%
D. 2.82%
E. 3.10%

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Solution Summary

There are 3 problems. Solutions describe the methodology to calculate project's payback period, discounted payback period or IRR as the case may be.

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Please refer attached file for better understanding of formulas.

Problem 1

Year Cash In flows Cumulative cash inflow
1 $300 $300
2 310 610
3 320 930
4 330 1,260
5 ...

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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