Consider a project with the following cash flows:

Year Cash Inflows

0 -$100,000

1 $0

2 $90,000

3 $40,000

4 $5,000

Assume a cost of capital of 10 percent.

1. What is the net present value of the project? 2. What is the IRR of the project? 3. What is the discounted payback of the project? 4. What is the profitability index of the project? 5. What are the disadvantages of using the payback period as a capital budgeting decision rule?