Part (a) 8 points

ARK International (US based) is operating in Globania, a country in Asia. Ignoring exchange rates, compute the NPV, the IRR, the payback, adjusted payback, and the profitability index for a project undertaken by ARK in Globania with cash flows as follows:

YEAR

CASH FLOWS

0

($ 2,000,000)

1

$ 800,000

2

$ 900,000

3

$ 1,200,000

4

$ 1,300,000

5

$ 500,000

Assume the weighted average cost of capital is 10%. Assume that cash flows are received at the end of the year. Should the project be accepted or rejected? Briefly explain your criteria and your decision choice.

Part(b) 2 points

Consider ARK in part (a). Unfortunately, the Globania government insists that any project cash flows can only be repatriated (sent back to the home country) when the project is terminated. Fortunately, the firm pays 8% interest per year for funds held up in this manner. Compute the NPV, the IRR, the payback, adjusted payback, and the profitability index for a project undertaken by ARK in Globania. Hint: don't need Excel to solve part (b).