Question
Clarity, Inc., is evaluating a project that has an initial outlay of $55,000. Expected cash flows are as follows: Year 1 $17,000 Year 2 $10,000
Clarity, Inc., is evaluating a project that has an initial outlay of $55,000. Expected cash flows are as follows:
Year 1 $17,000
Year 2 $10,000
Year 3 $10,000
Year 4 $17,000
Year 5 $40,000
The companys cost of capital is 12%. It does not accept projects that have a Payback Period (PP) longer than 3.5 years. Calculate the following and determine if the project is acceptable using each of the following methods.
2. a. What is this projects Internal Rate of Return (IRR)? Is the project acceptable? (17.27%)
b. What is this projects Profitability Index (PI)? Is this project acceptable? (1.16)
The correct answer is listed please show steps needed to arrive at that answer.
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