Laurence was presented with a capital expenditure for a furnace that would cost $12,000 today and would

Question:

Laurence was presented with a capital expenditure for a furnace that would cost $12,000 today and would generate the following savings.

Year _______________________ Amount

1 ...................................... $2,000

2 ...................................... $3,000

3 ...................................... $2,000

4 ...................................... $4,000

5 ...................................... $5,000

6 ...................................... $7,500

7 ...................................... $5,000

8 ...................................... $2,500

If the appropriate discount rate is 8 percent, what are the NPV and the IRR for this outlay?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...