# Capital Budgeting-NPV, IRR, Payback

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A project that costs $3,000 to install will provide annual cash flows of $800 for each of the next 6 years. Is this project worth pursuing, if the discount rate is 10 percent? How high can the discount rate be before you would reject the project?

PAYBACK A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years. The firm accepts projects with payback periods of less than 5 years. Will the project be accepted? Should this project be pursued, if the discount rate is 2 percent? What if the discount rate is 12 percent? Will the firm's decision change as the the discount rate changes?

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#### Solution Summary

NPV, IRR and Payback of two projects are calculated

$2.49