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Answers and Solutions:
11  5
114
PV = $12,000[(1/I)(1/(I*(1+I)
N
)]
= $12,000[(1/0.12)(1/(0.12*(1+0.12)
8
)]
= $59,611.68.
Financial calculator:
Find present value of future cash flows by inputting N = 8, I/YR =
12, PMT = 12000, FV = 0, then solve for PV = $59,611.68.
PI
= PV of future cash flows / Initial cost
= $59,611.68/$52,125 = 1.14.
115
Year
CF
Cumulative CF
0
52,125
52,125
1
12,000
40,125
2
12,000
28,125
3
12,000
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Unformatted text preview: 16,125 4 12,000 4,125 5 12,000 7,875 6 12,000 19,875 7 12,000 31,875 8 12,000 43,875 The cumulative cash flows turns positive in Year 5, so the payback will be 4 plus the part of Year 5 that is required to return the investment: Payback = 4 + ($4,125/$12,000) = 4.34. Because the future cash flows are identical, we can also find the payback period by dividing the cost by the cash flow: $52,125/$12,000 = 4.34....
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
 Spring '08
 Staff

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