A firm is evaluating a project with an initial investment of $1,000,000. The project has a

4-year life and the expected cash flows are:

Year Cash Flow

1 $ 200,000

2 200,000

3 400,000

4 500,000

The firm has a required rate of return of 12%.

a) Calculate the payback period

b) Calculate the net present value (NPV) and state whether the project should be accepted

c) Calculate the profitability index (PI)