1. Suppose you have an investment opportunity that requires a $40,000 initial investment, but will repay you $20,000 over each of the next three years. Calculate the payback period and IRR. Assuming an interest rate of 6%, calculate the NPV.
2. Suppose you are given a different and mutually exclusive investment opportunity, one that requires the same initial investment of $40,000, but is estimated to pay out $10,000 the first year and $26,000 in each of the following two years. Compare this investment to the investment in Problem 1. Which is more attractive? If it depends on interest rates, explain how.