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What are the advantages and disadvantages of the payback method, NPV, IRR? What is the decision criterion for NPV and IRR? Consider the cash flows
- What are the advantages and disadvantages of the payback method, NPV, IRR? What is the decision criterion for NPV and IRR? Consider the cash flows for the following two investments:
Year | Investment 1 | Investment 2 |
0 | -300 | -300 |
1 | 40 | 60 |
2 | 100 | 80 |
3 | 140 | 200 |
4 | 250 | 240 |
- What are the payback periods on these two investments?
- What are the NPV and IRR for each project if the required rate of return is 8%?
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