Using the Payback Method, IRR, and NPV

Create a 360-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. o Answer (180 words) • Describe the advantages and disadvantages of each method. o Answer (180 words) 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%? • Answer 2. What is the future value if you plan to invest $200,000 for 5 years and the interest rate is 5%? • Answer 3. What is the interest rate for an initial investment of $100,000 to grow to $300,000 in 10 years? • Answer 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? • Answer 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. • Answer Calculate the project cash flow generated for Project A and Project B using the NPV method. • Which project would you select, and why? o Answer • Which project would you select under the payback method? The discount rate is 10% for both projects. o Answer • Use Microsoft® Excel® to prepare your answer.