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# Calculating payback, discounted payback and IRR

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%

#### Solution Preview

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 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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