Question:
Consider the following potential investment, which has the same risk as the firm's other projects:
Time Cash Flow
0 -$75,000
1 $10,000
2 $16,000
3 $18,000
4 $18,000
5 $18,000
6 $20,000
Q1. What are the investment's payback period, IRR, and NPV, assuming the firm's WACC is 10%.
Q2. If the firm requires a payback period of less than 5 years, should this project be accepted?
Q3. Based on the IRR and NPV rules, should this project be accepted?
Q4. Which of the decision rules (payback, NPV, or IRR) do you think is the best rule for a controller to use when evaluating projects? Be sure to justify your choice.