Question
If you insulate your office for $25,000, you will save $2,500 a year in heating expenses. These savings will last forever. a. What is the
If you insulate your office for $25,000, you will save $2,500 a year in heating expenses. These savings will last forever.
a.What is the NPV of the investment when the cost of capital is 4%? 10%?
b.What is the IRR of the investment?(Enter your answer as a whole percent.)
c.What is the payback period on this investment?
Here are the expected cash flows for three projects:
Cash Flows (dollars)
Project Year: 0 1 2 3 4
A 5,500 +1,125 +1,125 +3,250 0
B 1,500 0 +1,500 +2,250 +3,250
C 5,500 +1,125 +1,125 +3,250 +5,250
a.What is the payback period on each of the projects?
b.If you use a cutoff period of 2 years, which projects would you accept?
Project A
Project B
Project C
Project A and Project B
Project B and Project C
Project A and Project C
Projects A, B, and C
None
c.If you use a cutoff period of 3 years, which projects would you accept?
Project A
Project B
Project C
Project A and Project B
Project B and Project C
Project A and Project C
Projects A, B, and C
None
d-1.If the opportunity cost of capital is 11%, calculate the NPV for projects A, B, and C.(Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)
d-2.Which projects have positive NPVs?
Project A
Project B
Project C
Project A and Project B
Project B and Project C
Project A and Project C
Projects A, B, and C
None
e."Payback gives too much weight to cash flows that occur after the cutoff date." True or false?
True
False
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