Question
Payback, NPV, and IRR Reiger International is evaluating the f easibility of investing $95,000 in a piece of equipment that has a 5-year life. The
| Payback, NPV, and IRR Reiger International is evaluating the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with the proposal, as shown in the following table. The firm has a 12% cost of capital. |
| Year (t) | Cash Inflows (CFt) | ||
| 1 | $20,000 | ||
| 2 | $25,000 | ||
| 3 | $30,000 | ||
| 4 | $35,000 | ||
| 5 | $40,000 |
| Question B | ||
| Calculate the net present value (NPV) for the proposed investment |
| Question C | ||
| Calculate the internal rate of return (IRR), rounded to the nearest whole percent, for the proposed investment |
| Question D | ||
| Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why? |
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Financial Markets And Corporate Strategy
Authors: Mark Grinblatt, Sheridan Titman
2nd Edition
0071157611, 9780071157612
