A project will cost 50000 today and produce equal after tax

A project will cost $50,000 today and produce equal after tax cash flows for the next seven years (these will be the only cash flows from the project). Your discount rate is 13%. If it turns out your payback period is four years, what is the net present value of this project?  

Solution

Payback period is the time upto which cost of project is recovered back. Cost of project $       50,000 /Payback period in years 4 Annual cash flows for payback period $       12,500 Question says that project will pay equal after tax cash flows annually.So, project will pay $ 12,500 for seven years. Now, Net Present Value is calculated as follows: Year Cash flow Discount factor Present Value a b c=1.13^-a d=b*c 0 $ -50,000      1.0000 $ -50,000.00 1        12,500      0.8850       11,061.95 2        12,500      0.7831         9,789.33 3        12,500      0.6931         8,663.13 4        12,500      0.6133         7,666.48 5        12,500      0.5428         6,784.50 6        12,500      0.4803         6,003.98 7        12,500      0.4251         5,313.26 Net Present Value         5,282.63