Question 8

Evaluate a proposed project with the following cash flow details:

Yearly Cash Flows:

• Year 0: -$90,000
• Year 1: $25,000
• Year 2: $30,000
• Year 3: $35,000
• Year 4: $40,000

Requirements:

1. Determine the cumulative cash flow for each year.
2. Calculate the payback period.
3. Compute the NPV at a 6% discount rate.
4. Calculate the Profitability Index (PI).
5. Decide whether to undertake the project based on the NPV and PI.