PP
What stands for PP?
Payback Period
DPP what means?
Discounted Payback Period
What means NPV?
Net profit value
IRR what means ?
Internal rate of return
PI what means?
Profitability index
Formula of PP
Pay-back period = A +B/C
A is the last period with a negative cumulative cash flow
B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A
Formula of DPP
DPP = I/∑ DCC
Formula of NPV?
NPV = ∑CF1/(1+r)1+CF2/(1+r)2+...CFn/(1+r)n-I0
Formula of IRR?
IRR = d1+(NPV1/(NPV1-NPV2))*(d2-d1)
Formula of PI
PI = ∑DCF/I0
If PP is good, this investment project is good.(True or False)
False because investment project doesn't depend on only PP.
If DPP is good, investment is good.(True or False)
True, because it is high possibility
If NPV = 0, what means?
Investment project doesn't give profit
IRR = NPV=0 is true?
Yeah, it's true
If PI<0, what will happen?
This situation never happen
I = $1000 C1 = $500, C2= $400, C3=$300, C4= $600
PP=?
PP = 1 year and 122 days
If you invest 600 US dollars in the project «S» today, you will receive 300, 200, 200, and 200 US dollars respectively over the next 4 years. The present values of your future earnings at a 10% discount rate are 273, 165, 150, and 137 US dollars. Calculate the sum of discounted inflows for 4 years.
725 US dollars
If you invest 600 US dollars in the project «S» today, you will receive 300, 200, 200, and 200 US dollars respectively over the next 4 years. The present values of your future earnings at a 10% discount rate are 273, 165, 150, and 137 US dollars. Calculate the net present value (NPV) of this project.
125 US dollars
The net present value of investment project “A” at a 10% discount rate is 292 US dollars, and at
30% it is –91 US dollars. Calculate the internal rate of return (IRR) for this project.
10 + (292/(292+91))(30-10) = 25,2 percent
The net present value of project «A» at a 10% discount rate is 292 US dollars. Calculate the
profitability index (PI) if the initial investment was 1000 US dollars.
292/1000 + 1 = 1,292
If you invest 600 US dollars in the project «S» today, you will receive 300, 200, 200, and 200
US dollars respectively over the next 4 years. Calculate the payback period (PP) of the project.
2 years and 6 months
If you invest 1000 US dollars in the project «А» today, you will receive 500, 400, 400, and 300
US dollars respectively over the next 4 years. Calculate the present value of the income promised
to you for the second year of the project if the discount rate is 10%.
400 / (1+0,1)2 = 331 US dollars
If you invest 500 US dollars in the project «T» today, you will receive 250, 200, 200, and 200
US dollars respectively over the next 4 years. Calculate the present value of the income promised
to you for the first year of the project if the discount rate is 10%.
250 / (1+0,1)1 = 227 US dollars
The net present value of investment project “B” at a 10% discount rate is 73 US dollars, and at
30% it is –86 US dollars. Calculate the internal rate of return (IRR) for this project.
10 + (73/(73+86))(30-10) = 19,2 percent
The net present value of project «C» at a 10% discount rate is 56 US dollars. Calculate the
profitability index (PI) if the initial investment was 600 US dollars.
56/600 + 1 = 1,093