Question 4

A corporation is planning to launch a new product with the following financial estimates:

Estimated Cash Flows:

• Year 0: -$100,000
• Year 1: $20,000
• Year 2: $30,000
• Year 3: $40,000
• Year 4: $50,000
• Year 5: $60,000

Requirements:

1. Calculate the cumulative cash flow for each year.
2. Determine the payback period.
3. Calculate the Net Present Value (NPV) at a 7% discount rate.
4. Compute the Internal Rate of Return (IRR).
5. Decide if the project should be undertaken based on the payback period, NPV, and IRR.