Evaluate the project using each of the following methods. For each method, should the project be accepted or rejected? Justify your answer based on the method used to evaluate the project’s cash flows.

Payback period
Internal Rate of Return (IRR)
Simple Rate of Return
Net Present Value

Payback period is used to determined the period in which an investment will be able to pay back itself. the shorter the pay back period the better. the project with short term period compare to the predetermined period by the firm shall be accepted. for mutually exclusive project, any project that has lower(lowest) pay back period and lower than the period fixed by the firm shall be accepted.

Internal rate of return is the rate at which the present value of cash inflow equal the present value of cash ouflow of a particular project. the project to be accepted must have IRR which is greater than the cost of capital of the company. for mutually exclusive project, ptoject with higher or highest IRR shall be accepted provided such IRR is greater than the cost of capital of the company.

Simple rate of return is the percentage of return on investment. this is based on accounting profit of the company rather than the cash flows. the project with higher rate of return than shareholder expected return shall be accepted.

Net present value is the sum of present value of both cash inflow and cash outflows of the company.  It takes into consideration time value of money. the project with positive NPV shall e accepted while project with negative NPV shall be rejected.

Explanation:

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