Question

capital investment of $38 million to $73 million, NPV's of $211 million to $244 million (discount rate of 5.5%) and payback period of 2.6 to 3.65 years and IRR of 54%.

based on the payback period analysis, does this seem to be an attractive investment? based on the IRR, does this seem to be an attractive investment opportunity? what appears to be pertinent information items for the IRR analysis?

Answer 1

Payback period of 2.6 to 3.65 is an acceptable range for any project in general. Payback period indicates that by 2.6 to 3,65 years the original invested amount will be generated by the project. This considering projects in general makes it an acceptable investment.

IRR is very high which is 54%; but to say based on IRR a project is acceptable or not, we need to know the cost of capital of the project. This means if cost of capital is less than IRR of a project, that project will be attractive, if cost of capital is higher than IRR, this means that project will be generating negative npv and project is less feasible.

note; Evaluation based on given limited information. To properly evaluate, more data of cashflows are needed.