A company has the following values for a project: NPV = - 10000 IRR = 12.5 Required rate of return = 10 Profitablity Index = .125 What is the Discounted payback period closest to: a) 10 b) 1 c) 100 d) can not be determined e) -10
I think choice d) because Discount Payback Period is a period of time. And its calculation should be compared with a point of time give signal of positive cash flow.
With an NPV of -10,000 I don’t think there is a discounted payback period. I thought a discounted payback period = time it takes you to get your money back? If all the cash flows discounted are not enough to make up for your initial investment, you’re not getting your money back.
Is this another creation of yours? A profitability index lower than 1 is not acceptable. Profitability index is PV of future cash flows/initial investment. As such, I just don’t see how an investment of 10,000 generate a PV of future cash flows of 1,250:)
and have an IRR of 12.5!
you bet. I created it on the fly. The fact that you are catching this is an invalid problem says you are ready for exam. While I am ready to fail.