Question
Asked Dec 5, 2019
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Please explain, I don't understand.

Payback
PV of all CFs
(RRR = 20%)
PV of - CFs
(RRR = 20%)
Cash
FV of + CFs
Year
Flow
(RRR = 20%)
%3D
(1,000s)
-$5,000
$3,000
$3,500
2
$3,200
$2,800
4
$2,500
1. What is the payback period?
2. Assume a 20% RRR, what is the NPV?
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Payback PV of all CFs (RRR = 20%) PV of - CFs (RRR = 20%) Cash FV of + CFs Year Flow (RRR = 20%) %3D (1,000s) -$5,000 $3,000 $3,500 2 $3,200 $2,800 4 $2,500 1. What is the payback period? 2. Assume a 20% RRR, what is the NPV?

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Expert Answer

Step 1

Payback period is the time period in which a company recoup its investment amount. The project with shorter payback period is generally chosen.

Step 2

Given:

RRR = 20%

Initial cost = $5000

Cashflows for 5 years are as follows:

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Year $3000 $3500 $3200 Cashflows $2800 $2500

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Step 3

Calculations:

(a)

Formula to calcul...

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Year Cashflows PV of cashflows Negative cumulative discounted cashflows ($5,000) ($2,500.00) (S69.44) Positive cumulative discounted cashflows 156 ($5,000) $3,000 $3,500 $3,200 $2,800 $2,500 157 158 $2,500.00 $2,430.56 $1,851.85 $1,350.31 $1,004.69 159 $1,782.41 $3,132.72 $4,137.41 160 161 4 162 163 RRR 164 Total 20% $4,137.41

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