Consider an investment that cost $100,000 and has a cash inflow of $25,000 every year for 5 years. The required return is 9% and the required payback is 4 years. What is the payback period? What is the npv? What is the irr? Should we accept this project? why
Answer The payback is 4 years (100,000/25,000 = 4).
The project met the payback criteria, but did not meet the minimum attractive rate of return requirement of 9%. Therefore we reject the project.
Mar 24, 2010
Chose the Highest Internal Rate of Return by: Dee Reavis
Any for profit company should be looking to maximize profit. The highest internal rate of return represents the highest profit possible for that project (or choice between projects).
