Question: A computer call center is going to replace all of its incandescent lamps with more energy efficient fluorescent lighting fixtures. The total energy savings are estimated to be $1,875 per year, and the cost of purchasing and installing the fluorescent fixtures is $4,900. The study period is five years, and terminal market values for the fixtures are negligible.
a. What is the IRR of this investment?
b. What is the simple payback period of the investment?
c. Is there a conflict in the answers to Parts (a) and (b)? List your assumptions.
d. The simple payback "rate of return" is 1/θ. How close does this metric come to matching your answer in Part (a)?