Prime Corp. management is planning to convert a warehouse into a new plant that will increase its production capacity by 45%. The cost of this project will be $7,125,000. It will result in cash flows of $1,875,000 for the next eight years. The discount rate is 12%.

A. What is the payback period?

B. What is the NPV for this project?

C. What is the IRR?

Student Name Date Score: Problem 3.1: Payback, NPV, IRR Prime Corp. management is planning to convert an existing warehouse into a new plant that will increase its production capacity by 45%. The cost of this project will be $7,125,000. It will result in additional cash flows of $1,875,000 for the next eight years. The discount rate is 12%. a. What is the payback period? b. What is the NPV for this project? c. What is the IRR? Unknowns: Project payback period, NPV,IRR Assumptions: The discount rate is an annual rate with annual compounding. All future cash flows are at the end of the year. Values Given information: Project cost, cash flow at t = 0 Future cash flows Years of future cash flows Discount rate Solution method: Cumulative Cash flow Payback Calculation Cash flow Year counter 0 1 2 3 5 6 7 8 Solve for the following: a. Payback (in years) b. NPV = Net Present Value C. IRR = Internal Rate of Return