Compute the NPV and profitability index for a project that requires an initial investment of $400,000 and
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Question:
Compute the NPV and profitability index for a project that requires an initial investment of $400,000 and provides the following annual cash inflows. Use a discount rate of 6%.
Cash Flows:
- Year 1: $90,000
- Year 2: $100,000
- Year 3: $110,000
- Year 4: $120,000
- Year 5: $130,000
Requirements:
- Calculate the present value of each cash inflow.
- Sum the present values to determine the total present value of inflows.
- Subtract the initial investment from the total present value to get the NPV.
- Calculate the profitability index.
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