# Vaughn Company has the following information about a potential capital investment: Initial investment ........$ 400,000 Annual cash

## Question:

Vaughn Company has the following information about a potential capital investment:

Initial investment ........$ 400,000

Annual cash inflow ........ $ 70,000

Expected life ........ 10 years

Cost of capital ........ 11%

1. Calculate and evaluate the net present value of this project.

2. Without any calculations, explain whether the internal rate of return on this project is more or less than 11 percent.

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...

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**Related Book For**

## Managerial Accounting

**ISBN:** 978-0078025518

2nd edition

**Authors:** Stacey Whitecotton, Robert Libby, Fred Phillips