Masulis Inc. is considering a project that has the following cash flow and WACC
ID: 2699004 • Letter: M
Question
Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback?
WACC: 10.00%
Year: 0 1 2 3 4
Cash Flow -700 525 485 445 405
Answers:
1.57
1.56
1.48
1.38
1.54
Datta Computer Systems is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year: 0 1 2 3
Cash Flow: -975 450 470 490
Answes:
17.55%
21.67
15.69
16.72
20.64
Explanation / Answer
year
0
1
2
3
4
cash flow
-700
525
485
445
405
Disc. CF
-700.00
477.27
400.83
334.34
276.62
Cumulative CF
-700
-222.73
178.10
512.43
789.05
In year 2 Cumulative CF has turned positive, so Discounted payback is before year 2.
It can be calculated as
Disc PB = 1 + -222.73/400.83 = 1 + 0.5557 = 1.56
For calculating IRR put NPV + 0 in NPV equation and calculate for rate. That rate is IRR
NPV = -975 + 450/(1 + r) + 470/(1 + r)^2 + 490/(1 + r)^3 = 0
IRR = 20.64%
year
0
1
2
3
4
cash flow
-700
525
485
445
405
Disc. CF
-700.00
477.27
400.83
334.34
276.62
Cumulative CF
-700
-222.73
178.10
512.43
789.05