Alpha Beta Co

a) In order to calculate the initial outlay, use the NPV calculation to find the present value of all cash flows using the following variables:

NPV = 0

IRR = 10%

Net cash flow = $25,000

n = 5 years

0=CF0+25,000(1+0.1)+25,000(1+0.1)2+25,000(1+0.1)3+25,000(1+0.1)4+25,000(1+0.1)50=CF0+25,000(1+0.1)+25,000(1+0.1)2+25,000(1+0.1)3+25,000(1+0.1)4+25,000(1+0.1)5

0=CF0+$94,769.670=CF0+$94,769.67

Therefore, the possible outlay amount should be any amount below $94,769.67

b) The simple payback period is calculated by dividing the initial outlay by the net cash flows:

Payback=94,769.6725000=3.79Payback=94,769.6725000=3.79 years

The discounted payback period is calculated by adding the present value of all cash flows to the initial outlay until an NPV of zero is achieved, using the project's cost of capital as follows:

PV=25,000(1+0.11)+25,000(1+0.11)2+25,000(1+0.11)3+25,000(1+0.11)4+25,000(1+0.11)5PV=25,000(1+0.11)+25,000(1+0.11)2+25,000(1+0.11)3+25,000(1+0.11)4+25,000(1+0.11)5

PV=22,522.52+20,290.56+18,279.78+16,468.27+14,836.28PV=22,522.52+20,290.56+18,279.78+16,468.27+14,836.28

PV=$92,397.43PV=$92,397.43

Because the present value of the discounted cash flows is lower than the initial outlay, the project will have a discounted payback period of greater than 5 years and would therefore represent a negative NPV.