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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)

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