Find the payback period irr-npv, Business Economics

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Your company's cost of capital is 12%. You are currently evaluating three projects that have the following cash flow streams:

Project

0

1

2

3

4

A

-10,000

4,000

4,000

4,000

4,000

B

-10,000

0

0

0

50,000

C

-1,000

500

500

500

500

a. Find the payback period, discounted payback period, IRR, and NPV for each of the three projects.

b. Use the payback period to evaluate options A and B. Which would you choose according to this method? Why does payback period give the wrong answer? 

c. Suppose projects A and C are mutually exclusive. Use the IRR to establish which of the two you should undertake. Why does IRR give the wrong answer? 

d. Determine whether Project A or C should be undertaken using incremental IRR. 

 

 


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