Concept explainers
a.
Adequate information:
Year | Project B | Project D |
0 | -$850 | -$1,700 |
1 | $670 | $1,300 |
2 | $510 | $750 |
3 | $90 | $350 |
Discount rate = 10%
To determine: The project that should be chosen based on the payback period.
Introduction: The payback period is the minimum period of time in which an initial investment of the project is recovered from the net cash inflows that it generates.
b.
Adequate information:
Year | Project B | Project D |
0 | -$850 | -$1,700 |
1 | $670 | $1,300 |
2 | $510 | $750 |
3 | $90 | $350 |
Discount rate = 10%
To determine: The project that should be chosen based on the NPV.
Introduction:
c.
Adequate information:
Year | Project B | Project D |
0 | -$850 | -$1,700 |
1 | $670 | $1,300 |
2 | $510 | $750 |
3 | $90 | $350 |
Discount rate = 10%
To determine: The project should be chosen based on the
Introduction: IRR is the rate at which the aggregate
d.
Adequate information:
Year | Project B | Project D |
0 | -$850 | -$1,700 |
1 | $670 | $1,300 |
2 | $510 | $750 |
3 | $90 | $350 |
Discount rate = 10%
To determine: The project that should be chosen based on the Incremental IRR.
Introduction: Incremental IRR tells how much extra a company earns from a project when it invests in a larger project.

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