Question
Consider the following set of cash flows to be generated by an asset under consideration for investment. 0 1 2 3 4 5 years |---------------
Consider the following set of cash flows to be generated by an asset under consideration for investment.
0 1 2 3 4 5 years
|--------------- |---------------- |---------------- |---------------- |----------------- |
-$8000 $1500 $1500 $2100 $2100 $2275
The asset will cost $8000 to purchase. Assume a required rate of return of 9% per year, compounded annually.
A. Calculate the net present value (NPV) of this set of cash flows.
B. Calculate the internal rate of return (IRR) of the set of cash flows.
C. Based on the NPV, should the company invest in this asset? Why or why not?
D. Based on the IRR, should the company invest in this asset? Why or why not?
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Focus On Personal Finance
Authors: Jack Kapoor, Les Dlabay, Robert Hughes
3rd Edition
0073382426, 9780073382425
