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NPV, Equivalent Annual Cash Flow Calculations

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Consider the following projects:

Cash Flows, $
Project C0 C1 C2 C3 C4 C5
A -1,200 +1,200 0 0 0 0
B -2,400 +1,200 +1,200 +4,200 +1,200 +1,200
C -3,000 +1,200 +1,200 0 +1,200 +1,200
________________________________________

a-1. If the opportunity cost of capital is 12%, what is the NPV for each project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project NPV
A $

B $

C $

________________________________________

b. Calculate the payback period for each project. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Project Payback Period
A year(s)

B year(s)

C year(s)

________________________________________

d. Calculate the discounted payback period for each project. (Enter 0 if the payback period cannot be calculated. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project Discounted
Payback Period
A year(s)

B year(s)

C year(s)

________________________________________

You have the chance to participate in a project that produces the following cash flows:

Cash Flows, $
C0 C1 C2
+5,000 +4,000 -11,000
________________________________________

a. The internal rate of return is 13%. If the opportunity cost of capital is 10%, what is the NPV of the project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

NPV $

Machines A and B are mutually exclusive and are expected to produce the following real cash flows:

Cash Flows ($ thousands)
Machine C0 C1 C2 C3
A -109 +119 +130
B -129 +119 +130 +142
________________________________________

The real opportunity cost of capital is 8%. (Use PV table.)

a. Calculate the NPV of each machine. (Do not round intermediate calculations. Enter your answers in thousand rounded to the nearest whole number.)

Machine NPV
A $

B $

________________________________________

b. Calculate the equivalent annual cash flow from each machine. (Do not round intermediate calculations. Round "PV Factor" to 3 decimal places. Enter your answers in thousand rounded to the nearest whole number.)

Machine Cash flow
A $

B $

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Solution Summary

This solution explains to calculate NPV and equivalent annual cash flow through excel.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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