Crunching Numbers

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Crunching Numbers

By | May 2012
Page 1 of 3
Shiree Izzard
Assignment 3: Crunching Numbers
PAD 505
Professor Angela Parham
May 13, 2012

Below are the calculations of Payback Period, Net Present Value, and Internal Rate of Return for Option A and Option B. Payback period for Option A:
-2,000,000 (YR1) + -1,010,000(YR2) + -450,000(YR3) + 510,000(YR4) + 710,000(YR5) +710,000(YR6) +710,000(YR7) + 710,000(YR8) = -110,000 -110,000/700,000(YR9) = -0.157
8 + 0.157 = 8.157 OR 8.16 years
Net Present Value for Option A:
-2,000,000/(1+.12)^1+-1,010,000/(1+.12)^2+-450,000/(1+.12)^3+510,000/(1+.12)^4+710,000/(1+.12)^5+710,000/(1+.12)^6+ 710,000/(1+.12)^7+710,000/(1+.12)^8+700,000/(1+.12)^9+400,000/(1+.12)^10= -835,344.48 Internal Rate of Return for Option A:

-2,000,000 + (-1,010,000)/(1+.0486) + (-450,000)/(1+.0486)^2 + (510,000)/(1+.0486)^3 + (710,000)/(1+.0486)^4 + (710,000)/(1+.0486)^5 + (710,000)/(1+.0486)^6 + (710,000)/(1+.0486)^7 + (700,000)/(1+.0486)^8 + (400,000)/(1+.0486)^9 = 0 Payback Period for Option B:

-2,500,000(YR1) + 200,000(YR2) + 650,000(YR3) + 650,000(YR4) +650,000(YR5) = -350,000 -350,000/650,000 = 0.538
5 + 0.538 = 5.538 or 5.54 years
Net Present Value for Option B:
-2,500,000/(1+.12)^1 + 200,000/(1+.12)^2 + 650,000/(1+.12)^3 + 650,000/(1+.12)^4 + 650,000/(1+.12)^5 + 650,000/(1+.12)^6 + 650,000/(1+.12)^7 + 650,000/(1+.12)^8 + 650,000/(1+.12)^9 + 200,000/(1+.12)^10= 356,519.77 Internal Rate of Return for Option B:

-2,500,000 + (200,000)/(1+.1587) + (650,000)/(1+.1587)^2 + (650,000)/(1+.1587)^3 + (650,000)/(1+.1587)^4 + (650,000)/(1+.1587)^5 + (650,000)/(1+.1587)^6 + (650,000)/(1+.1587)^7 + (650,000)/(1+.1587)^8 + (2000,000)/(1+.1587)^9 = 0 After using the Excel program, I was able to calculate the Payback Period, Net Present Value, and Internal Rate of...