ECONOMICS

Detailed explanation-1: -NPV can be calculated with the formula NPV = ⨊(P/ (1+i)t ) – C, where P = Net Period Cash Flow, i = Discount Rate (or rate of return), t = Number of time periods, and C = Initial Investment.

Detailed explanation-2: -The term payback period refers to the amount of time it takes to recover the cost of an investment. Simply put, it is the length of time an investment reaches a breakeven point. People and corporations mainly invest their money to get paid back, which is why the payback period is so important.

Detailed explanation-3: -The NPV method assumes that cash flows will be reinvested at the risk free rate while the IRR method assumes reinvestment at the IRR. The NPV method assumes that cash flows will be reinvested at the cost of capital while the IRR method assumes reinvestment at the risk-free rate.