Suppose your friend Sarah came to see you with an opportunity to invest in a project that generates $5,000 in the first and the third year, and where the cash flow in the second year is $3,000. The initial investment required for the project is $10,000. If the risk-adjusted rate is 15%, she insists that the project is worth the investment. Which method is Sarah using?
- Internal rate of return
- Payback period
- Net present value
- Profitability index