Level 13 - PVI, IRR, Payback 1. You have the choice between two investment alternatives. Alternative 1 Present Value Inflows Present Value Outflows 180,000 163,000 Calculate the following: NPV of Alternative 1 NPV of Alternative 2 PVI of Alternative 1 PVI of Alternative 2 Which has a higher rate of return? Alternative 2 150,000 110,000 2. Your company is considering purchasing some equipment for $597,750. The equipment will save costs of $125,000 per year and has a useful life of 6 years, with no salvage value. The company has established a hurdle rate of 5% when evaluating investments What is the IRR? Should you accept or reject the project? 3. You are considering investing in two different restaurant franchises: Los Pollos Hermanos and Jimmy Juan's. Each has zero salvage value Jimmy Los Pollos Juan's Cost $450,000 Annual cash inflows $110,000 Hermanos $325,000 $95,000 8 6 Useful life in years Payback for Jimmy Juan's Payback for Los Pollos Hermanos Which should be accepted?