Year Cash flow

0 -4,000

1 1,000

2 1,000

3 1,000

4 1,000

5 1,000

Assume the initial cash flow occurs at the beginning of period one and that each subsequent cash flow occurs at the end of the respective time period. The discount rate is 12%.

1. Compute the payback period

2. Compute the NPV

Payback method Advantage Disadvantage

NPV Advantage Disadvantage

At what NPV should a company accept a project?