Business Finance Class

1. About Net Present Value (NPV) and Interest Rate of Return (IRR)

There are three cash flows:                 

C0                      C1                     C2

-6750               +4500              +18000

a. Calculate the NPV of the project for discount rates of 0%, 50%, and 100%

b. What is the IRR of the project?

2. About Equivalent Annual Cost

Econo-Cool air conditioners cost $300 to purchase, result in electronic bills of $150 per year and last for 5 years. Luxury Air models cost $500, result in electronic bills of $100 per year and last for 8 years. The discount rate is 21%.

What are the Equivalent Annual Cost of the Econo-Cool and Luxury Air models?

Which model is more cost effective?