Explore BrainMass

# Calculate payback period, discount rate, NPV, IRR

Not what you're looking for? Search our solutions OR ask your own Custom question.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

As director, you are reviewing three potential investment projects with the following cost and cash flow projections.

Cash Flow Project 1 Project 2 Project 3
Investment Cost (\$400,000) (\$375,000) (\$400,000)
Year One Cash Flow \$200,000 \$75,000 \$50,000
Year Two Cash Flow \$50,000 \$75,000 \$120,000
Year Three Cash Flow \$75,000 \$85,000 \$140,000
Year Four Cash Flow \$50,000 \$225,000 \$125,000
Year Five Cash Flow \$125,000 \$60,000 \$125,000

1. What is the Payback Period for each project?

2. If the discount rate for all three projects is 10.5%, What is the Net Present Value for each project?

3. What is the Internal Rate of Return (IRR) for each project?

4. If your capital investment budget of \$500,000 will only allow selection of one project (making the projects now mutually exclusive), which project is best to fund?

#### Solution Summary

As director, you are reviewing three potential investment projects with the following cost and cash flow projections.

Cash Flow Project 1 Project 2 Project 3
Investment Cost (\$400,000) (\$375,000) (\$400,000)
Year One Cash Flow \$200,000 \$75,000 \$50,000
Year Two Cash Flow \$50,000 \$75,000 \$120,000
Year Three Cash Flow \$75,000 \$85,000 \$140,000
Year Four Cash Flow \$50,000 \$225,000 \$125,000
Year Five Cash Flow \$125,000 \$60,000 \$125,000

1. What is the Payback Period for each project?

2. If the discount rate for all three projects is 10.5%, What is the Net Present Value for each project?

3. What is the Internal Rate of Return (IRR) for each project?

4. If your capital investment budget of \$500,000 will only allow selection of one project (making the projects now mutually exclusive), which project is best to fund?

\$2.49