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    Caspital Budgeting

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    If you insulate your office for $10,000, you will save $1,000 year in heating expenses. These savings will last forever.

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

    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%? 10%?

    NPV = PV of inflows - initial investment
    The inflows are a perpetuity and so the present value is given ...

    Solution Summary

    The solution explains how to calculate the NPV, IRR and payback period of the investment

    $2.49

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