A firm is evaluating a potential investment in a new project:

• Initial investment: $1.2 million
• Expected annual cash inflows:
  • Year 1: $300,000
  • Year 2: $320,000
  • Year 3: $340,000
  • Year 4: $360,000
  • Year 5: $380,000
• Depreciation: 25% on Written Down Value basis
• Cost of capital: 12%
• Salvage value at end of Year 5: $100,000
• Corporate tax rate: 30%

Required:

1. Calculate the NPV of the project.
2. Determine the IRR.
3. Compute the payback period.
4. Calculate the profitability index.
5. Provide a recommendation based on the financial analysis.