(Solved): Question 1 [5 marks] Table below summarizes annual cash flows expected from a firm's project at the ...
Question 1 [5 marks] Table below summarizes annual cash flows expected from a firm's project at the end of each year: \table[[Year,1,2,3],[Cash flow,55,000,242,000,66,550]] The project requires an upfront investment cost of
$290,000. The required rate of return on the project is
10%. Using the information, answer questions a) and b) below. (Lecture notes pp.11-12, p.19) - a) Determine the ("simple") payback period for this project. If the firm's investment policy requires all new projects to have a payback period shorter than 3 years, will the project be accepted? Answer (show the steps/calculation toward your results): b) Calculate the Profitability Index of the project. If the firm accepts projects with a Profitability Index of 1.2 or higher, will the project be accepted? Answer (show the steps/calculation toward your results):
