Discounted Payback Your company is considering a high risk project that could yield strong revenues but will involve a significant up front investment Because of this risk, top management is naturally concerned about how long it is likely to take to pay off that investment so that they can begin to realize profits This project will require an investment of $200,000 and your five year projection for inflows is Year 1 $50,000, Year 2 $75,000, Year 3 $125,000, Year 4 $200,000, and Year 5 $250,000 Your firms required rate of return is 18 How long will it take to pay back your initial investment 3 24 Net Present Value Assume that your firm wants to choose between two project options Project A $500,000 invested today will yield an expected income stream of $150,000 per year for five years, starting in Year 1 Project B an initial investment of $400,000 is expected to produce this revenue stream Year1 0, Year2 $50,000, Year3 $200,000, Year4 $300,000, and Year5 $200,000 Assume that the required rate of return for your company is 10 and that inflation is expected to remain steady at 3 for the life of the project Which is the better investment Why

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Discounted Payback. Your company is considering a high-risk project that could yield strong revenues but will involve a significant up-front investment. Because of this risk,

Discounted Payback. Your company is considering a high-risk project that could yield strong revenues but will involve a significant up-front investment. Because of this risk, top management is naturally concerned about how long it is likely to take to pay off that investment so that they can begin to realize profits. This project will require an investment of $200,000 and your five-year projection for inflows is: Year 1 $50,000, Year 2 $75,000, Year 3 $125,000, Year 4 $200,000, and Year 5 $250,000. Your firms required rate of return is 18%. How long will it take to pay back your initial investment?

3.24 Net Present Value. Assume that your firm wants to choose between two project options:

Project A: $500,000 invested today will yield an expected income stream of $150,000 per year for five years, starting in Year 1.

Project B: an initial investment of $400,000 is expected to produce this

revenue stream:

Year1=0, Year2=$50,000, Year3=$200,000, Year4=$300,000, and Year5=$200,000.

Assume that the required rate of return for your company is 10% and that inflation is expected to remain steady at 3% for the life of the project. Which is the better investment? Why?