Capital Budgeting Practice

Cash flows for an investment are as follows:

Time point
0
1
2
3
4
5
6

Amount of flow
- 5,000
+ 1,500
+ 1,300
+ 1,400
+ 1,200
+ 1,000
+ 1,000

What is the payback period?

For the problem data above, what is the NPV if the opportunity interest rate is 8%?

What is the IRR if the opportunity interest rate is 10% for these flows
at time points 0, 1, 2, and 3, respectively -200, +80, +80, +80?

A.
B.
C.
D.

3 1/2
4
3 2/3
3 3/4

A.
B.
C.
D.

1,207
2,400
7,400
808

A.
B.
C.
D.

11.0%
9.7%
8.5%
5.0%

A present value table is provided for use in answering questions 4 and 5.

The Present Value of $1 Due in N Periods
N
6%
8%
10%
1
0.943
0.926
0.909
2
0.890
0.857
0.826
3
0.840
0.794
0.751
4
0.792
0.735
0.683
5
0.747
0.681
0.621
6
0.705
0.630
0.564

1/9/2014

12%
0.893
0.797
0.712
0.636
0.567
0.507

14%
0.877
0.769
0.675
0.592
0.519
0.456

16%
0.862
0.743
0.641
0.552
0.476
0.410