1.A project costs $5,000 and will generate annual cash flows of $660 for 20 years. What is the payback period? If the interest rate is 6 percent, what is the project NPV? Should the project be accepted?
2. What is the office development's NPV if construction c osts increase to $355,000? Assume the opportunity cost of capital is 12 percent. Is the development still a worthwhile investment? How high can development costs be before the project is no longer attractive?
Now suppose that the opportunity cost of capital is 20 percent with construction costs of $355,000.
Why is the office development no longer an attractive investment?