B10. (Investment criteria) Suppose Reebok has a possible capital budgeting project with a cost of
capital of 10%, and the expected cash flows shown here.
a. Calculate the project’s NPV. Should Reebok accept the project?
b. Calculate the project’s IRR. Should Reebok accept the project according to the IRR rule?
c. Calculate the project’s payback. What does payback tell you about the project’s
acceptability?
YEAR 0 1 2 3 4 5
Cash flow −100 25 50 50 25 10
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