Consider the following potential investment, which has the same risk as the firms other projects: TimeCash Flow

Question:

Consider the following potential investment, which has the same risk as the firm’s other projects:

TimeCash Flow

0 ...................................-$95,000

1 ....................................$20,000

2 ....................................$24,000

3 ....................................$24,000

4 ....................................$24,000

5 ....................................$24,000

6 ....................................$32,000

a) What are the investment’s payback period, IRR, and NPV, assuming the firm’s WACC is 10%.

b) If the firm requires a payback period of less than 5 years, should this project be accepted? Be sure to justify your choice.

c) Based on the IRR and NPV rules, should this project be accepted? Be sure to justify your choice.

d) Which of the decision rules (payback, NPV, or IRR) do you think is the best rule for a firm to use when evaluating projects? Be sure to justify your choice.

a) What are the investment’s payback period, IRR, and NPV, assuming the firm’s WACC is 10%.

b) If the firm requires a payback period of less than 5 years, should this project be accepted? Be sure to justify your choice.

c) Based on the IRR and NPV rules, should this project be accepted? Be sure to justify your choice.

d) Which of the decision rules (payback, NPV, or IRR) do you think is the best rule for a firm to use.

Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...