ABC Corporation is considering an investment project proposal that requires an initial outlay of RM500,000. The project is expected to provide net cash inflows of RM125,000 in year 1, RM250,000 in year 2, RM300,000 in year 3, RM225,000 in year 4, RM100,000 in year 5, RM25,000 in year 6 and RM0 in year 7.

(a) Compute the payback period for the project.

(b) Compute the net present value of the project if the firm estimates its cost of capital to be 14%. Based on the projects net present value, should Awesome Corporation make this investment? Why?

(c) Why is net present value considered to be a superior method of evaluating the cash flows from a project?

(d) Evidence suggests that in spite of the theoretical superiority of net present value, financial managers use the internal rate of return approach just as often as the net present value method. Discuss the above statement.