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Whats the simple payback period

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Reference no: EM13850189

One of the main uses of TVM concepts is to help a firms CFO and CEO decide what new investments to approve, vs. disapprove. This is referred to as capital budgeting. There are 3 commonly used methods to do capital budgeting; simple payback, net present value or NPV, and internal rate of return, or IRR.

Use all three methods for the following example; look at my "helpful memo on using Excel for TVM" to assist you:

A project is expected to generate a savings or profit improvement of $25,000/yr each for 4 years

The investment needed to generate this savings is $80,000

1. Whats the simple payback period?

2. Whats the projects NPV if the firms discount rate or cost of capital is 10%?

3. Whats the projects IRR For all three methods, completely ignore taxes?

Reference no: EM13850189

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