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FinanceQ&A Libraryf you insulate your office for $29,000, you will save $2,900 a year in heating expenses. These savings will last forever. a. What is the NPV of the investment when the cost of capital is 5%? 10%?b. What is the IRR of the investment? (Enter your answer as a whole percent.)c. What is the payback period on this investment?Question

Asked Feb 6, 2020

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f you insulate your office for $29,000, you will save $2,900 a year in heating expenses. These savings will last forever.

**a.** What is the NPV of the investment when the cost of capital is 5%? 10%?

**b.** What is the IRR of the investment? **(Enter your answer as a whole percent.)**

**c.** What is the payback period on this investment?

Step 1

**a.**

Given,

Saving Amount per Year = $2,900

Investment Amount = $29,000

** **

**NPV at Cost of Capital of 5%:**

The calculation of the NPV of the investment at the cost of capital at 5% is as follows:

Hence, NPV is $29,000 when the cost of capital is 5%.

**NPV at Cost of Capital of 10%:**

The calculation of the NPV of the investment at the cost of capital at 10% is as follows:

Hence, NPV is $0 when the cost of capital is 10%.

Step 2

The rate at which the NPV is zero is termed as IRR and in this investment, the NPV is ze...

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