Ford Motor Company is considering a new project with the following cash flows:
•Initial investment: $2,000,000
•Year 1: $500,000
•Year 2: $700,000
•Year 3: $800,000
•Year 4: $900,000
The company's required rate of return is 12%.
Required:
1.Calculate the Payback Period.
2.Determine the Net Present Value (NPV).
3.Calculate the Profitability Index (PI).
4.Discuss the advantages and disadvantages of using these methods in capital budgeting.