Q1 . ABC Company is considering a new product line to supplement its range line. It is anticipated that the new product line will involve cash investment of $700,000 at time 0 and $1.0 million in year 1. After-tax cash inflows of $250,000 are expected in year 2, $300,000 in year 3, $350,000 in year 4, and $400,000 each year thereafter through year 10. Though the product line might be viable after year 10, the company prefers to be conservative and end all calculations at that time.

a - If the required rate of return is 15 percent, what is the net present value (NPV) of the project? Is it acceptable?

b -What is its profitability index (PI) of the project?

c - What would be the case if the required rate of return was 10 percent?

d - What is the projects payback period? Is it acceptable?

e - Briefly compare and contrast the NPV, PI, and IRR criteria. What are the advantages and disadvantages of using each of these methods?