Consider the following cash flows:
A. Payback The company requires all projects to payback within 3 years. Calculate the payback period. Should it be accepted or rejected?
B. Discounted Payback Calculate the discounted payback sing a discount rate of 8%. Should it be accepted or rejected?
Year 0 1 2 3 4 5 6 Cash Flow -$5,000 $1,200 $2,400 $1,600 $1,600 $1,400 $1,200
Year 0 1 2 3 4 5 6 Cash Flow -$5,000 $1,200 $2,400 $1,600 $1,600 $1,400 $1,200
C. IRR Calculate the IRR for this project. Should it be accepted or rejected?
D. NPV Calculate the NPV for this project. Should it be accepted or rejected?
E. PI Calculate the Profitability Index (PI) for this project. Should it be accepted or rejected?
The profitability Index is: NPV/Initial Cost