The finance team of Saray Co. has put together the following cash flow that you will need to make an accept/reject decision on using tools such as Net Present Value (NPV), Internal Rate of Return (IRR)and Payback period.

Cost Today -$6,000

Cash Flow per Year for 6 Years $1,400

Cost of Capital 9.5%

This problem may require a review of present value concepts. The $1,400 per year cash flow for 6 years is commonly called an annuity. Assume the cost is paid today and the first $1,400 is received at the end of year 1. What is the NPV, IRR, Payback (in years) and accept/reject decision?

a. $2,400,11%,4.3,Accept

b. $188, 11%, 4.3, Accept

c. $188, 8%,4.3,Reject

d. $2,400, 8%,6,Reject

e. none of the above

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