Urban Developers Ltd. is considering the development of a new residential complex. The project details are:

• Initial Cost: USD 5,000,000
• Project Duration: 10 years
• Residual Value: USD 600,000
• Depreciation Method: Straight Line
• Cost of Capital: 14%

Expected annual cash flows:

Year	Cash Flow	Profit
1	600,000	100,000
2	650,000	110,000
3	700,000	120,000
4	750,000	130,000
5	800,000	140,000
6	850,000	150,000
7	900,000	160,000
8	950,000	170,000
9	1,000,000	180,000
10	1,050,000	190,000

Requirements:

a. What is the relevance of the payback period in capital budgeting decisions? b. Explain the concept of the discounted payback period. c. Using the data provided:

• Calculate the payback period.
• Compute the discounted payback period.
• Determine the NPV and IRR.

Assess the profitability index