The finance manager is considering a project that has the following forecasted Free Cash Flows:

Option #1: IRR and NPV

The finance manager is considering a project that has the following forecasted Free Cash Flows:

Years Cash Flow
0 -$25,000
1 $7,000
2 $13,000
3 $8,000
4 $12,000
5 $10,000

Assuming the WACC is 15% and a tax rate of 40%, do the following:

1. Compute the Internal Rate of Return (IRR) of the project and interpret the results.

2. Based on the IRR, should this project be accepted or rejected? Explain.

3. Compute the Net Present Value (NPV) of the project and interpret the results.

4. Based on the NPV, should this project be undertaken? Explain.

5. Compute the Profitability Index (PI) of the project and interpret the results.

6. Based on the PI should the project be undertaken? Explain.

7. Compute the Payback period.

8. If the pre-specified cutoff period is three, should the project be accepted? Fully explain.

Thanks.