Reference no: EM132814058
Using the following initial cost and cash flow figures below for Projects 1 and 2, please answer the three questions (a, b, and c).
Expected Net Cash Flows Year Project 1 Project 2
0 -$1,000,000 -$1,000,000
1 520,000 150,000
2 300,000 425,000
3 280,000 800,000
Both of the projects have a cost of capital (r) of 11.5 percent (so r = 0.115 in decimal form).
a) What is Project 1's net present value (NPV)? Based on your answer for the NPV, should this project be accepted or rejected? Briefly explain.
b) Rounding your answer to the second decimal place, what is Project 2's internal rate of return (IRR)? Based on your answer for the IRR, should this project be accepted or rejected? Briefly explain.
c) Finally, what is the payback period (in years) for Project 2?
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