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You are reviewing a capital project proposal
You are reviewing a capital project proposal. The project has an upfront cost of $1,810,000. The resulting positive cash flows over the next five years are: $595,000, $480,000, $540,000, $760,000, and $460,000. The company's required return on investment is 14%.
Instructions: Calculate the following:
a) Net present value
b) Internal rate of return
c) Discounted payback period
d) Profitability index
e) Approve or reject project
Expert Solution
a) Net present value (NPV) = 134649.45
b) Internal rate of return (IRR) = 17.04%
c) Discounted payback period = 4.44 years
d) Profitability index (PI) = 1.07
e) The project should be accepted because NPV is positive, IRR is greater than the required return & profitability index is greater than 1.
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