**Using the Payback Method, IRR, and NPV **

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**Purpose of Assignment **

**The purpose of this assignment is to allow the student to calculate the project cash flow using net present value (NPV), internal rate of return (IRR), and the payback methods. **

**Assignment Steps **

**Resources: ****Corporate Finance**

**Create a 350-word memo to management including the following:**

**· Describe the use of internal rate of return (IRR), net present value (NPV), and the payback method in evaluating project cash flows.**

**· Describe the advantages and disadvantages of each method. **

**Calculate the following time value of money problems: **

**1. If you want to accumulate $500,000 in 20 years, how much do you need to deposit today that pays an interest rate of 15%?**

**2. What is the future value if you plan to invest $200,000 for 5 years and the interest rate is 5%?**

**3. What is the interest rate for an initial investment of $100,000 to grow to $300,000 in 10 years?**

**4. If your company purchases an annuity that will pay $50,000/year for 10 years at a 11% discount rate, what is the value of the annuity on the purchase date if the first annuity payment is made on the date of purchase?**

**5. What is the rate of return required to accumulate $400,000 if you invest $10,000 per year for 20 years. Assume all payments are made at the end of the period. **

**Calculate the project cash flow generated for Project A and Project B using the NPV method. **

**· Which project would you select, and why? **

**· Which project would you select under the payback method? The discount rate is 10% for both projects. **

**· Use Microsoft® Excel® to prepare your answer. **

**· Note that a similar problem is in the textbook in Section 5.1.**

**Sample Template for Project A and Project B: **

**Show all work.**

**Submit the memo and all calculations.**