Read the scenario.

You are the financial manager of a firm that is contemplating investing $25,000 in a new project that you expect will generate cash flows of $10,000 per year for five years and then $15,000 per year for another two years. At the end of seven years you expect to sell the project's assets for $50,000. You believe that you should earn at least 14% to compensate the shareholders for the project's risk.

Answer the following questions:

• Explain the process for evaluating this project.
• What is the present value of the project's terminal value?
• What is the most that you should pay for this project?
• What is the Profitability Index?
• What is the Pay Back Period?
• Is this project consistent with the firm's goal assuming you can invest $25,000 in this project?
• What is the primary goal of the firm?