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Cost of Capital Calculations

I need help in understanding the cost of capital and how to figure it. Calculate the values for each project using the time value table- the cost of capital is 12%

1. NPV
2. IRR
3. Profitability index
4.Payback Period

Year Project A Project B
0 $-30,000 $-60,000
1 $ 10,000 $20,000
2 $ 10,000 $20,000
3 $ 10,000 $20,000
4 $ 10,000 $20,000
5 $ 10,000 $20,000

Solution Preview

Please see the attached file.

NPV = Net Present value of all cash flows associated with the project 6047.76
To calculate IRR, we know that at IRR the net ...

Solution Summary

This solution explains the concept of cost of capital and shows how to calculate the Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index and Payback period for Project A and Project B. All formulas and workings are shown in an Excel file.