R = 11%, project years is 6, cash outlay = $100,000, free cash flow per year is $35,000 (each year for 6 years)

1)     Payback in years

2)     Discount payback in years

3)     NPV

 

(1): Payback is the number of years in which the initial investment is recouped.

Here payback = cash outlay/free cash flow per year

= $100,000/$35,000

= 2.86 years (rounded to 2 decimal place)

(2): For discounted pay back we will use the rate of 11% and convert all annual cash flows to their present value terms.

Please look at the excel image attached below. We can see that the cumulative cash flows are becoming positive in 4^th year. Hence payback = 3 + (14469.98/23055.58)

= 3.63 years

(3): NPV is the net present value and is the sum of all present values (PVs).

The 2^nd image shows that NPV is $48,068.82

Please see the attached file for the complete solution