Given the following cash flows, calculate the payback and the discounted payback for this project assuming a cost of capital of 10%. Provide an interpretation for each.
Time Period Cash Flow
0 -$500,000
1 $100,000
2 $140,000
3 $180,000
4 $170,000
5 $150,000
What is the problem than can occur when using the NPV and IRR to evaluate mutually exclusive projects. Please be specific.
What are the problems associated with using the payback statistic to evaluate capital budgeting projects?
Describe the problems associated with using the IRR statistic to evaluate capital budgeting projects.