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    NPV and IRR of an investment

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    Investment Criteria. If you insulate your office for $10,000, you will save $1,000 a year in heating expenses. These savings will last forever.
    a. What is the NPV of the investment when the cost of capital is 8 percent? 10 percent?
    b. What is the IRR of the investment?
    c. What is the payback period on this investment?

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    Solution Preview

    a. What is the NPV of the investment when the cost of capital is 8 percent? 10 percent?

    The NPV is the PV of all the cash inflows less the initial investment. Here the inflows are in the nature of a perpetuity, since they last ...

    Solution Summary

    The solution explains the calculation of NPV, IRR and payback period for an investment.

    $2.19

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