1 answer

1. A company is considering a project, Project A. The established time horizon to recover the...

Question:

1. A company is considering a project, Project A. The established time horizon to recover the initial capital outlay is 5 yea
1. A company is considering a project, Project A. The established time horizon to recover the initial capital outlay is 5 years. The projected cash flows for Project A are shown below. Project A Year I Cash Flow (S) (220,000) 60,000 2 70,000 85,000 70,000 50,000 The cost of capital for these projects is 9 percent. Required: Use the information presented to evaluate for Project A: a) Payback period b) Discounted payback period c) Net present value d) Profitability index e) Assess the results of Project A, and provide your recommendation

Answers

Using excel formula

Year 0.00 1 2 3 4 5
Project A -220000 60000 70000 85000 70000 50000
Cumulative Cash flow -220000.00 -$160,000.00 -$90,000.00 -$5,000.00 $65,000.00 $115,000.00
Payback Period 3.07
excel formula (3+5000/7000)


Year 0.00 1 2 3 4 5
Project A -220000 60000 70000 85000 70000 50000
Discounted Cash Flow -220000.00 55045.87 58917.60 65635.60 49589.76 32496.57
Cumulative Cash flow -220000.00 -$164,954.13 -$106,036.53 -$40,400.93 $9,188.83 $41,685.40
Discounted Payback Period 3.81
excel formula 3+40400.93/49589.76

USing excel to calculate NPV and PI

A
Project A
1 Year Cash Flow
2 0 -220000
3 1 60000
4 2 70000
5 3 85000
6 4 70000
7 5 50000
NPV $261,686.40
Excel formula NPV(9%,A3:A7)+A2
PI $2.19
Excel formula (1+261686.50/220000)

Since NPV is positive project should be accepted

.

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