If the project described in the previous problem also involves an expected cash flow of -$150,000 in 5 years, should I Scream use IRR to evaluate this project?

dgeting criteria - 45Capital Budgeting Criteria: PaybackOur approach to learning payback involvesGoing over the approach based on words, steps, and equations that may seem somewhat unclear at firstThen going over the approach using a table, which may seem more clear•The words, steps, and equations are necessary to go over first, because they are what the table approach is based on

dgeting criteria - 46Capital Budgeting Criteria: PaybackComputing and applying payback in 5 easy stepsStep 1: Determine the investment, which is the amount of cash that must be recovered• -C0equals the investment with conventional cash flowsC0is negative, but the investment is stated as a positive amount, so investment = -C0

dgeting criteria - 48Capital Budgeting Criteria: PaybackComputing and applying payback in 5 easy stepsStep 3: compute expected cash flow needed after each year (starting with year 2) to reach payback until either payback is reached or all years in the project have been analyzed•(Investment – cumulative expected cash flow produced through a given year) = additional expected cash needed after that given year to offset investment and reach paybackCumulative expected cash flows produced through year t = (C1+ … + Ct)•If (investment – cumulative expected CF produced through a given year) isPositive, then insufficient expected cash has been produced by the end of that year to offset investment, so repeat step 3 for the next yearZero, then payback is expected to take place exactly at the end of that given year and go to step 5Negative, then payback is expected during that given year, and go to step 4 to determine when it occurs