An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firms

Question:

An investment costs $23,958 and will generate cash flow of $6,000 annually for five years. The firm’s cost of capital is 6 percent.

a. What is the investment’s internal rate of return? Based on the internal rate of return, should the firm make the investment?

b. What is the investment’s net present value? Based on the net present value, should the firm make the investment?

c. Compare the answers to Problems 1 and 2. Do the net present values and the internal rates of return suggest the same courses of action in each problem?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...

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