ICO $ 825 ,000 Year 1 $ 450 ,000 Year 2 $3 75 ,000 Year 3 $2 75 ,000 Year 4 $1 2
ID: 2699970 • Letter: I
Question
ICO $825,000
Year 1 $450,000
Year 2 $375,000
Year 3 $275,000
Year 4 $125,000
Listed above are the cash flows for a project. The firm%u2019s cost of capital is 17%. The maximum allowable payback period is 3 years. Given this information calculate the Payback Period, Net Present Value, Profitability Index, and Internal Rate of Return for the project and given your calculations explain, for each of the techniques, whether the project is acceptable. Justify your answer. Note: You may use your financial calculator to find the IRR.
Explanation / Answer
Payback Period= 2 years
Net Present Value= $ 71966.125
Profitability Index= 1.087
Internal Rate of Return= 22.29%