Question

If a project has a cost of $10,000, expected net cash flows of $1500 a year for 12 years and you use a discount rate of 6%, what is the following:

1. Payback period (no application of discount rate)
2. Payback period (using discount rate)
3. NPV
4. IRR
5. Should the project be accepted?

If another project has a cost of $10,000 and has expected life of 8 years and it will generate $3000 a year should you accept the project if your boss says the cost of capital is 5%?

Answer 1

For Project 1, as NPV>0, IRR> Discount rate , the project should be accepted.

For Project 2, as NPV > 0 , the project should be accepted.

Formulae