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    Payback period, discounted payback, NPV, IRR

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    Question 1
    Assume you have just been promoted junior financial manager of a company. You are very smart and are planning to be promoted in the next 2-2.5 years. An associate of your company shows you a project with the following cash flows.

    End of Year Cash Flows
    0 -$100,000
    1 $40,000
    2 $40,000
    3 $40,000
    4 $40,000
    5 -$20,000
    6 $80,000

    a) Compute the payback period of this project.

    b) Compute the discounted payback period of this project assuming a discount rate of 5%.

    c) Would you accept this project? Explain.

    d) Compute the NPV of the project. Is this a good project?

    e) Would you use the IRR as evaluation technique for this project? Explain.

    Quest 2
    A project has the following cash flows:

    End of Year Cash Flows
    0 -150,000
    1 60,000
    2 60,000
    3 60,000
    4 60,000
    5 60,000
    6 -50,000
    7 -50,000
    8 -50,000
    9 -50,000
    10 -50,000
    A) Compute the NPV of the project assuming a discount rate of 0%
    B) Compute the NPV of the project assuming a discount rate of 8.02%
    C) Interpret the results in a) and b)
    D)If this project's risk adjusted discount rate is 6% should the project be accepted? Explain

    Question 3

    The "golden rule" in capital budgeting is to select a project if the NPV of the project is positive. Would you accept a project with a negative NPV? Explain

    Please see attached for full question.

    © BrainMass Inc. brainmass.com April 3, 2020, 2:34 pm ad1c9bdddf
    https://brainmass.com/economics/risk-analysis/payback-period-discounted-payback-npv-irr-39471

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    Solution Summary

    Questions on capital budgeting involving calculations for payback period, discounted payback, NPV have been answered.

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