FIN 200 Intro of Finance Payback & IRR 1. You are considering buving a machine for your company. This machine costs $173,000. You expect this machine will generate a cashflow of $65,000 one year from now, $62,000 two years from now, and $60,000 three years from now. Your company's cost of capital is rate of 4% per year, compounded annually. Calculate the NPV of the project. Show your calculator inputs. b. Calculate the IRR of the project. Show your calculator inputs. c. What is the NPV when IRR = Cost of Capital? a. 2. A farmer is considering buying a tractor for $2000. The tractor should generate new cashflow of $800 per year for 3 years. a Draw a diagram of the cashflows of the project (buying the tractor). b. Calculate the IRR of the project. Show your calculator inputs. c. If the farmer's cost of capital is a rate of 3% per year, should they do the project? Why or why not? d. If the farmer's cost of capital is a rate of 15% per year, should they do the project? Why or why not? Calculate the payback period of the project. f. If the farmer's minimum payback period is 2 years, should they do the project? 8 What is one problem with the payback period method that this project highlights e. 3. You are considering initiating a new marketing program for your company. The program has startup costs of $1,750,000 for the rollout. You expect the program will increase cashflow by the following amounts: year 1$300,000 year 2 = $300,000 I year 3= $300,000 year 4 $400,000 years $1,000,000 Your company's cost of capital is rate of 6% per year. a. Calculate the NPV of the project. Show your calculator inputs. Should they do the project? Why or why not? b Calculate the IRR of the project. Show your calculator inputs. Should they do the project? Why or why not? c.Calculate the payback period of the project. d. If the company's minimum payback period is 4 years, should they do the project? What is one problem with the payback period method that this project highlights? FIN 200 Intro of Finance Payback & IRR 1. You are considering buving a machine for your company. This machine costs $173,000. You expect this machine will generate a cashflow of $65,000 one year from now, $62,000 two years from now, and $60,000 three years from now. Your company's cost of capital is rate of 4% per year, compounded annually. Calculate the NPV of the project. Show your calculator inputs. b. Calculate the IRR of the project. Show your calculator inputs. c. What is the NPV when IRR = Cost of Capital? a. 2. A farmer is considering buying a tractor for $2000. The tractor should generate new cashflow of $800 per year for 3 years. a Draw a diagram of the cashflows of the project (buying the tractor). b. Calculate the IRR of the project. Show your calculator inputs. c. If the farmer's cost of capital is a rate of 3% per year, should they do the project? Why or why not? d. If the farmer's cost of capital is a rate of 15% per year, should they do the project? Why or why not? Calculate the payback period of the project. f. If the farmer's minimum payback period is 2 years, should they do the project? 8 What is one problem with the payback period method that this project highlights e. 3. You are considering initiating a new marketing program for your company. The program has startup costs of $1,750,000 for the rollout. You expect the program will increase cashflow by the following amounts: year 1$300,000 year 2 = $300,000 I year 3= $300,000 year 4 $400,000 years $1,000,000 Your company's cost of capital is rate of 6% per year. a. Calculate the NPV of the project. Show your calculator inputs. Should they do the project? Why or why not? b Calculate the IRR of the project. Show your calculator inputs. Should they do the project? Why or why not? c.Calculate the payback period of the project. d. If the company's minimum payback period is 4 years, should they do the project? What is one problem with the payback period method that this project highlights