Hamilton Control Systems will invest $90,000 in a temporary project that will generate the following cash inflows for the next three years.
Year Cash Flow
1 $23,000
2 $38,000
3 $60,000
The firm will be required to spend $15,000 to close down the project at the end of three years.
If the cost of capital is 10 percent, should the investment be undertaken? Use the net present value method.
A) Find the net present value of the investment described.
B) Calculate its profitability index.