A project requires an initial investment of $750,000 and will return $200,000 ea

Question

A project requires an initial investment of $750,000 and will return $200,000 each year for the next 5 years.                                                                                                             

a. If the required rate of return is 9%, what is the projects NPV (net present value)?  

b. Based on your analysis, should the company proceed with the project?  Explain your answer   

c. What is the project IRR (internal rate of return)?

d. Explain how the NPV and IRR relate.                                             

e. What is the payback period?         

Explanation / Answer

a= required rate of return 9% npv is = 27,940
b= as NPV is positive the project should be accepted by viewing other pros n cons
c= IRR internal rate of return is 10.42%
d= IRR is risk based approach set by the company to get the profit within the limit while npv defines in absolute terms whether the project is acceptable or not

e= payback period is 3.5 years but project should be assess as it can be profitable more

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