1This means that if you take the investment for 10000 today your compound

# 1this means that if you take the investment for 10000

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1.This means that if you take the investment for \$10,000 today, your compound average annual rate of return will be 20% per year. The true cost of capital can be as high as 20% and the investment will still have a positive NPV. IRR are indiffrenent to scale but will allow you to rank according to percetage. *use weighted averge cost or opportunity cost for discount rate if not given 1.The incremental earnings of a project comprises the amount by which the project is expected to change the Pisa Pizza's earnings. 19.Payback Period = Cost of Project / monthly Cash Inflows. Can be used in comibaition with NPV and IRR to see success of an investment. Not always accurate has the downside of no TVM, the later payments come the less it is worth. 21. a. investment A has the higher IRR 21. b. Invemnet B has the higher npv when cost of captal is at 7%. So investment b is actually the better investment because the pv of this investment is actually higher than investment a with the higher IRR 12. The FCF from the outside supplier is negative 390 thousand per year and the NVP from the outside supplier is negative \$ (1,957,320). The FCF from in- house 1-9 years is negative 283,750 and FCF for the tenth year is negative 220,750. The NPV is negative \$ (1,708,501). So next is to subtract the NPV to

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• Spring '10
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