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Chapter 10 - NPV, PI, Payback, IRR Practice Worksheet With Answers

The company is considering investing $500,000 with estimated annual cash inflows of $145,000 for 5 years. The minimum required return on investment is 15%. To evaluate the project, the present value of cash flows must be calculated using a 15% discount rate and net present value, profitability index, payback period, and internal rate of return determined. Calculating these metrics will indicate whether the investment meets the company's requirements.

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2K views6 pages

Chapter 10 - NPV, PI, Payback, IRR Practice Worksheet With Answers

The company is considering investing $500,000 with estimated annual cash inflows of $145,000 for 5 years. The minimum required return on investment is 15%. To evaluate the project, the present value of cash flows must be calculated using a 15% discount rate and net present value, profitability index, payback period, and internal rate of return determined. Calculating these metrics will indicate whether the investment meets the company's requirements.

Uploaded by

offodile8974
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLS, PDF, TXT or read online on Scribd
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Worksheet

Information given:
( a ) The company is considering an investment costing $500,000
( b ) It is estimated the benefit will last for 5 years.
( c ) The company's minimum return on investment required is 15%
( e ) The company estimates annual cash inflows of $145,000
1. Calculate PV of cash outflows
Cash Flows
0 $ (500,000)
1 $ 145,000
2 $ 145,000
3 $ 145,000
4 $ 145,000
5 $ 145,000

Present Value
Factors @ 15%

Amount

X
X
X
X
X

=
=
=
=
=
-

2. Calculate NPV:
=

3. Calculate the Profitability Index:


=

4. Calculate Payback Period:


=
5. Calculate Internal Rate of Return
PVCO
$ 500,000

=
=

PVCI * Factor (%, yrs)


$ 145,000
x

Present Value of an Annuity of $1 per period for n periods


Period
1%
2%
3%
4%
1
0.9901
0.9804
0.9709
0.9615
2
1.9704
1.9416
1.9135
1.8861
3
2.9410
2.8839
2.8286
2.7751
4
3.9020
3.8077
3.7171
3.6299
5
4.8534
4.7135
4.5797
4.4518
6
5.7955
5.6014
5.4172
5.2421
7
6.7282
6.4720
6.2303
6.0021
8
7.6517
7.3255
7.0197
6.7327

F(%, 5yrs)

5%
0.9524
1.8594
2.7232
3.5460
4.3295
5.0757
5.7864
6.4632

12%
0.8929
1.6901
2.4018
3.0373
3.6048
4.1114
4.5638
4.9676

14%
0.8772
1.6467
2.3216
2.9137
3.4331
3.8887
4.2883
4.6389

18%
0.8475
1.5656
2.1743
2.6901
3.1272
3.4976
3.8115
4.0776

Period
1
2
3
4
5
6
7
8

20%
0.8333
1.5278
2.1065
2.5887
2.9906
3.3255
3.6046
3.8372

PV Table 10-1 Present Value of $1


due at the end of n periods
10%
12%
14%
15%
0.9091
0.8929
0.8772
0.8696
0.8264
0.7972
0.7695
0.7561
0.7513
0.7118
0.6750
0.6575
0.6830
0.6355
0.5921
0.5718
0.6209
0.5674
0.5194
0.4972
0.5645
0.5066
0.4556
0.4323
0.5132
0.4523
0.3996
0.3759
0.4665
0.4039
0.3506
0.3269

16%
0.8621
0.7432
0.6407
0.5523
0.4761
0.4104
0.3538
0.3050

Worksheet
Information given:
( a ) The company is considering an investment costing $500,000
( b ) It is estimated the benefit will last for 5 years.
( c ) The company's minimum return on investment required is 15%
( e ) The company estimates annual cash inflows of $145,000
1. Calculate PV of cash outflows
Cash Flows
0 $ (200,000)
1 $ 50,000
2 $ 50,000
3 $ 50,000
4 $ 50,000
5 $ 50,000

Present Value
Factors @ 15%
X
X
X
X
X

Amount

0.8929
0.7972
0.7118
0.6355
0.5674
-

=
=
=
=
=
$

2. Calculate NPV:

180,240
(200,000)
(19,760)

3. Calculate the Profitability Index:

$
$

180,240
200,000
0.90

$
$

200,000
50,000
4.00

4. Calculate Payback Period:


=

44,645
39,860
35,590
31,775
28,370
180,240

5. Calculate Internal Rate of Return


PVCO
$ 500,000
$ 500,000

=
=
/

PVCI * Factor (%, yrs)


$ 145,000
x
$ 145,000
=

Present Value of an Annuity of $1 per period for n periods


Period
1%
2%
3%
4%
1
0.9901
0.9804
0.9709
0.9615
2
1.9704
1.9416
1.9135
1.8861
3
2.9410
2.8839
2.8286
2.7751
4
3.9020
3.8077
3.7171
3.6299
5
4.8534
4.7135
4.5797
4.4518
6
5.7955
5.6014
5.4172
5.2421
7
6.7282
6.4720
6.2303
6.0021

F(%, 5yrs)
3.45 Gives you the factor, you have the years

5%
0.9524
1.8594
2.7232
3.5460
4.3295
5.0757
5.7864

12%
0.8929
1.6901
2.4018
3.0373
3.6048
4.1114
4.5638

14%
0.8772
1.6467
2.3216
2.9137
3.4331
3.8887
4.2883

18%
0.8475
1.5656
2.1743
2.6901
3.1272
3.4976
3.8115

8
Period
1
2
3
4
5

7.6517

7.3255

7.0197

6.7327

6.4632

4.9676

4.6389
13.79%
0.87881185
0.77231026
0.67871541
0.59646314
0.52417887
3.45047953

4.0776

Period
1
2
3
4
5
6
7
8

have the years

20%
0.8333
1.5278
2.1065
2.5887
2.9906
3.3255
3.6046

PV Table 10-1 Present Value of $1


due at the end of n periods
10%
12%
14%
15%
0.9091
0.8929
0.8772
0.8696
0.8264
0.7972
0.7695
0.7561
0.7513
0.7118
0.6750
0.6575
0.6830
0.6355
0.5921
0.5718
0.6209
0.5674
0.5194
0.4972
0.5645
0.5066
0.4556
0.4323
0.5132
0.4523
0.3996
0.3759
0.4665
0.4039
0.3506
0.3269

16%
0.8621
0.7432
0.6407
0.5523
0.4761
0.4104
0.3538
0.3050

3.8372

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