A firm is considering two projects Both have an initial investment of $1,000,000 and pay off over the next five years in this fashion The cost of capital is 6 a Which of these has a faster payback period b Which of these options has a higher net present value c Which of these options has a higher i...

A firm is considering two projects. Both have an initial investment of $1,000,000 and pay off over

Question:

A firm is considering two projects. Both have an initial investment of $1,000,000 and pay off over the next five years in this fashion. The is 6%.

Option 2 Option 1 -1,000,000 Year O -1,000,000 Year 1 1,000,000 250,000 Year 2 250,000 Year 3 250,000 Year 4 250,000 Yea

a. Which of these has a faster payback period?
b. Which of these options has a higher net present value?
c. Which of these options has a higher internal rate of return (IRR)?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...