First five years of a business:
Cost of Capital 8.00%
Initial Investment $(40,000)
Year 1 Cash Flows 8,000
Year 2 Cash Flows 9,200
Year 3 Cash Flows 10,000
Year 4 Cash Flows 12,000
Year 5 Cash Flows 14,500
-
Calculate the net present value (NPV), internal rate of return
(IRR) and payback period. -
Assume you can sell the business in year 5 for 10x’s annual cash
flow. Calculate the net present value (NPV) and internal rate of
return (IRR). -
Suppose the cost of capital is 12% instead of 8%…..
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What are the net present value (NPV) and internal rate of return
(IRR) for the initial cash flow numbers with the new cost of
capital? -
Now, assume you can sell the business in year 5 for 10x’s annual
earnings. What are the net present value (NPV) and internal rate of
return (IRR) with the new cost of capital?