Investment Project Cash Flows - Payback, Internal Rate of Return, and Net Present Value

Cash Flow Analysis for Braun Industries' Investment Project

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Braun Industries is considering an investment project, which has the following cash flows: tProject Cash Flows

0-$1,000

1 400

2 300

3 500

4 400

The company's WACC is 10 percent. What is the project's payback, internal rate of return and net present value?

A. Payback = 2.6, IRR = 24.12%, NPV = $300.

B. Payback = 2.6, IRR = 21.22%, NPV = $260.

C. Payback = 2.4, IRR = 21.22%, NPV = $260.

D. Payback = 2.6, IRR = 21.22%, NPV = $300.

E. Payback = 2.4, IRR = 10.00%, NPV = $600.

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A. B. C. D. E.

Payback = 2 + 300/500 = 2.6 years.

IRR: -1000 + 400/(1+Irr)^1 + 300/(1+Irr)^2 + 500/(1+Irr)^3 + 400/(1+Irr)^4 = 0: IRR = 21.22%.

NPV = -1000 + 400/(1+.10)^1 + 300/(1+.10)^2 + 500/(1+.10)^3 + 400/(1+.10)^4 = $260.46.

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