Discuss the following:
1. About Net Present Value (NPV) and Interest Rate of Return (IRR)
There are three cash flows:
C0 C1 C2
-6750 +4500 +18000
a. Calculate the NPV of the project for discount rates of 0%, 50%, and 100%
b. What is the IRR of the project?
2. About Equivalent Annual Cost
Econo-Cool air conditioners cost $300 to purchase, result in electronic bills of $150 per year and last for 5 years. Luxury Air models cost $500, result in electronic bills of $100 per year and last for 8 years. The discount rate is 21%.
What are the Equivalent Annual Cost of the Econo-Cool and Luxury Air models?
Which model is more cost effective?