A company is considering a project for investment which will cost $70,000 now and another $10,000 in year five.

The company has a cost of capital of 8%. The project has the following discounted cash flows:

YearDiscounted Cash Flows

$

123,148

230,007

319,846

414,701

What is its discounted payback period in years and months (to the nearest month)?

Sonoran Co recently evaluated an investment project that had an initial cash outlay followed by positive annual net cash flows over its life. The company employed the internal rate of return (IRR) and discounted payback period (DPP) methods for the investment appraisal. Later, it was discovered that the cost of capital figure used was incorrect and that the correct figure was higher.

What will be the effect on the IRR and DPP of correcting for this error?

A business is considering various investment projects, with each expected to have an initial cash outflow followed by positive cash inflows over the rest of its life. The operations director has stated that the net present value and internal rate of return methods will, if correctly applied to each individual project, always give projects with the same characteristics:

1. Accept or reject decision for individual projects

2. Priority ranking for those projects that are acceptable

Which of the following combinations (true/false) is correct?