One of the main uses of TVM concepts is to help a firm's CFO and CEO decide what new investments to approve, vs. disapprove. This is referred to as capital budgeting. There are 3 commonly used methods to do capital budgeting; simple payback, net present value or NPV, and internal rate of return, or IRR.

Use all three methods for the following example:

A project is expected to generate a savings or profit improvement of $25,000/yr each for 4 years

The investment needed to generate this savings is $80,000

a. whats the simple payback period

b. whats the projects NPV if the firms discount rate or cost of capital is 10%

c. whats the projects IRR

For all three methods, completely ignore taxes.