Calculate and graph the npv of the incremental cash flows

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Cutler Compacts will generate cash flows of $30,000 in year 1 and $65,000 in year 2. They are presented with a new opportunity. If they make an immediate investment of $25,500, they can expect to increase their cash flows to $66,500 in year 1 and $78,900 in year 2. However, the new investment would also imply that they have an incremental cash outflow of $25,500 in year 3.

(a) Calculate and graph the NPV of the incremental cash flows as a function of interest rates of 7%, 9%, 11%, 13% and 15%.

(b) If Cutler traditionally uses IRR to evaluate new investments, what advice would you give them?

Reference no: EM13894281

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