# Npv Coporate Finance

441 Words2 Pages
Fin 3322: Cashman Investment Rules 1. Given the following cash flows for project Z: C0 = -2,000, C1 = 600, C2 = 2160 and C3= 6000, calculate the discounted payback period for the project at a discount rate of 20%. Discounted C0 = -2,000 Discounted C1 = 600/1.2 = 500 Discounted C2 = 2,160/1.2^2 = 1,500 Discounted C3 = 6,000/1.2^3 = 3,472.22 The discounted payback period for the project is 2 years 2. Bill’s Biotech Co. is considering buying a new incubator that will cost \$54,200 today. Net cash flows from the incubator will be \$20,608 at the end of each year for the next five years. Also, at the end of the fifth year, Bill estimates he can sell the incubator for \$13,200. If Bill’s opportunity cost of capital is 15%. a) What is the incubator’s payback period? Cash flow is an equal amount each year, so payback = (54,200/20,608) = 2.63 years. b) What is the incubator’s discounted payback period? |Year |0 |1 |2 |3 |4 |5 |5 | |Cash Flow |-54,200 |20,608 |20,608 |20,608 |20,608 |20,608 |13,200 | | | | | | | | | | |PV | |17,920 |15,582.61 |13,550.09 |11,782.69 |10,245.82 |6,562.73 | Discounted payback = 3.61 years c) What is the NPV of investing in the incubator? N = 5; I/Y = 15; PV = ? ; PMT = 20,608; FV = 13,200 PV = 75,643.95 NPV = 75,643.95 – 54,200 = 21,443.95 | | | | | | | | |