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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 Summary

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

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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 ...

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