Calculate Payback Period, Net Present Value And Internal Rate Of Return For An Investment

Question

Consider an investment project where the net cash flows in years 1-5 respectively are as follows: $10,000, $20,000, $10,000, $40,000, $30,000. You are given that the initial investment is $20,000. Assume a discount rate of 10% per annum.

(a) Calculate the payback period.

(b) Calculate the discounted payback period.

(c) Calculate the net present value (NPV). Should the investment project be accepted or rejected? Why?

(d) Calculate the profitability index (PI). Should the investment project be accepted or rejected? Why?

(e) Calculate the internal rate of return (IRR). Should the investment project be accepted or rejected? Why?

Summary

The question belongs to Finance and it discusses about calculation of payback period, discounted payback period, net present value, profitability index and internal rate of return.

Total Word Count 242