Question: (Payback and NPV) Three projects have the cash flows given here. The cost of capital is 10%.
Q1. Calculate the paybacks for all three projects. Rank the projects from best to worst based on their paybacks.
Q2. Calculate the NPVs for all three projects. Rank the projects from best to worst based on their NPVs.
Q3. Why are these two sets of rankings different?
Year 0 1 2 3 4 5
Project 1 (-10) 4 3 2 1 5
Project 2 (-10) 1 2 3 4 5
Project 3 (-10) 4 3 2 1 10