Consider the following cash flows:

YEAR 0 1 2 3 4 5 6

CASH FLOW -$10K $2,200 $3,300 $2,500 $2,500 $2,300 $2,100

A. Payback The company requires all projects to payback within 3 years.

Calculate thepayback period. Should it be accepted or rejected?

B. Discounted PaybackCalculate the discounted payback using a discount rate of 10%. Should it be accepted or rejected?

C. IRRCalculate the IRR for this project. Should it be accepted or rejected?

D. NPVCalculate the NPV for this project at a rate of 10%. Should it be accepted or rejected?

E. PICalculate the Profitability Index (PI) for this project. Should it be accepted or rejected? There are two common formulas for the profitability Index:

PV of Future Cash Flows/Initial Cost, accept if PI > 1.0

or

NPV/ Initial Cost, accept if PI > 0