Explain npv-irr and profitability index and payback period

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Reference no: EM132003300

1. Explain NPV, IRR, Profitability Index, and Payback period as investment selection criterion. What are the benefits and drawbacks of each?

2. Consider the following cash flows for years 0-4, respectively: -$1,512; $8,586; -$18,210; $17,100; -$6,000.a.How many IRRs are there? What are they?b. When do you think this project should be pursued?

3. Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,900,000 and will last for six years. Variable costs are 35% of sales and fixed costs are $170,000 per year. Machine B costs $5,100,000 and will last for nine years. Variable costs for this machine are 30% of sales and fixed costs are $130,000 per year. The sales for each machine will be $10 million per year. The required return is 10% and the tax rate is 35%. Both machines will be depreciated straight-line over their lifetimes. a.What are the equivalent annual costs of each machine?b. Which machine should Vandalay Industries select?

Reference no: EM132003300

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