Answer:
a) the payback period of this investment = 5.00 years
b) Net Present Value is €11,945,600
Explanation:
From the given information:
a)
The payback period of this investment is determined by using the formula:
Payback Period = Cost of investment/ annual net cashflow
Payback Period = €80,000,000/€16,000,000
Payback Period = 5.00 years
Thus; the payback period of this investment = 5.00 years
b) What is the net present value of this investment?
The net present value of the investment is computed in the table below
interest rate of return i = 8%
no of year n = 8 years
The PV factor is for 8 years and 8% is:
Year 8% factor rate
1 0.9259
2 0.8573
3 0.7938
4 0.7350
5 0.6806
6 0.6302
7 0.5835
<u>8 0.5403</u>
<u> 5.7466</u>
Cash Flow Select Chart Amount × PV Factor = PresentValue
Annual Table B1 16,000,000 × 5.7466 = 91,945,600
CashFlow (Using Excel)
Net Cash
Inflow 91,945,600
Less:
<u>Investment 80,000,000 </u>
Net Present 11,945,600
Value
<u> </u>
