A corporation is evaluating an investment project with an initial cost of $400,000. The projected net cash flows are:

Year	Cash Flows ($)	DF (11%)
1	90,000	0.901
2	95,000	0.812
3	100,000	0.731
4	105,000	0.659
5	110,000	0.593
Salvage Value	50,000	0.593

Requirements:

1. Calculate the NPV of the project.
2. Determine the IRR.
3. Compute the profitability index.
4. Find the discounted payback period.
5. Evaluate the project based on the NPV and IRR.

---

FullscreenBoldItalicUnderlineStrikethroughSubscriptSuperscript
Font Family

• Arial
• Georgia
• Impact
• Tahoma
• Times New Roman
• Verdana

Font Size

• 8
• 9
• 10
• 11
• 12
• 14
• 18
• 24
• 30
• 36
• 48
• 60
• 72
• 96

Inline Style

• Big Red
• Small Blue

Paragraph Style

• Gray
• Bordered
• Spaced
• Uppercase

Paragraph Format

• Normal

• Heading 1
• Heading 2
• Heading 3
• Heading 4
• Code

Align

• Align Left
• Align Center
• Align Right
• Align Justify

Ordered ListUnordered ListDecrease IndentIncrease Indent
Insert ImageInsert TableΩSpecial CharactersInsert Horizontal LineSelect AllClear Formatting
UndoRedo
????????Clear Formatting
????Selected Clear Formatting


Unlicensed copy of the Froala Editor. Use it legally by purchasing a license.

Type something

Question 1

Given the following cash flows for project A and project B,

Project A:

• Year 0: -$50,000
• Year 1: $12,000
• Year 2: $14,000
• Year 3: $16,000
• Year 4: $18,000
• Year 5: $20,000

Project B:

• Year 0: -$100,000
• Year 1: $25,000
• Year 2: $28,000
• Year 3: $30,000
• Year 4: $35,000
• Year 5: $40,000

a. Calculate the NPV, IRR, and traditional payback period for each project, assuming a required rate of return of 10 percent.

b. If the projects are independent, which project(s) should be selected? If they are mutually exclusive, which project should be selected?