Clarity inc is evaluating a project that has an initial, Ask an Expert

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Clarity, Inc., is evaluating a project that has an initial outlay of $55,000. Expected cash flows are as follows:

Year 1 $17,000

Year 2 $10,000

Year 3 $10,000

Year 4 $17,000

Year 5 $40,000

The company’s cost of capital is 12%. It does not accept projects that have a Payback Period (PP) longer than 3.5 years. Calculate the following and determine if the project is acceptable using each of the following methods.

a. What is this project’s Internal Rate of Return (IRR)? Is the project acceptable?

b. What is this project’s Profitability Index (PI)? Is this project acceptable?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92397310

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