Problem:
Consider an investment project where the net cash flows in years 1-5 respectively are as follows: $10,000, $20,000, $10,000, $40,000, $30,000. You are given that the initial investment is $20,000. Assume a discount rate of 10% per annum.
(a) Calculate the payback period.
(b) Calculate the discounted payback period.
(c) Calculate the net present value (NPV). Should the investment project be accepted or rejected? Why?
(d) Calculate the profitability index (PI). Should the investment project be accepted or rejected? Why?
(e) Calculate the internal rate of return (IRR). Should the investment project be accepted or rejected? Why?
Additional Information:
This question basically belongs to Finance as well as it explains about computation of payback period, discounted payback period, net present value, profitability index as well as internal rate of return.