Andrew Wolford
BYS330 Principles of Finance
Week Four Assignment March 4th, 2014

Chapter Ten Study Problem 10-4: (Payback period, NPV, PI, and IRR calculations) You are considering a project with an initial cash outlay of $80,000.00 and expected free cash flows of $20,000.00 at the end of each year for 6 years. The required rate of return for this project is 10 percent.
a. What is the project’s payback period? Remember first that payback period is the number of years needed to recover the initial cash outlay related to an investment as is determined by the number of years just prior to complete payback + the unplaid-back amount at beginning of yearfree cash flow in year payback is completed.
Here, simply enough, you just have to take the initial cash outlay of $80,000.00 divided by the incremental cash flow of $20,000.00. So, the payback period is 4 years.
b. What is the project’s NPV? First, NPV or net present value is the present value of an investment’s annual free cash flow less the investment’s initial outlay. Present Value
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Free cash x Factor at 10 percent = Present Value
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Inflow year 1 $20,000.00 x 11+0.10 = $18,181. 818
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Inflow year 2 $20,000.00 x 1(1+0.10)2 = $16,528.926
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Inflow year 3 $20,000.00 x