Question

1.      Using the incremental cash flows, and WACC computes the following and the state in each case whether the company should go ahead with the project.

WACC is 10.76%

Net Cash Flow	0 years 2015	1 year 2016	2 years 2017	3 year 2018	4 year 2019
	($26,000)	$6,582	$7,194	$6,948	$ 23,999

         a.      Payback

         b.      NPV

c.      IRR

         d.      Profitability Index

Answer 1

1.
Payback=3+(26000-6582-7194-6948)/23999=3.219842493 years

If the maximum acceptable payback is more than 3.3 years, accept the project otherwise reject the project

2.
NPV=-26000+6582/1.1076+7194/1.1076^2+6948/1.1076^3+23999/1.1076^4=6866.487922

Accept the project

3.
IRR=IRR({-26000;6582;7194;6948;23999})=20.1226%
As IRR is more than WACC, accept the project

4.
Profitability Index=1+6866.487922/26000=1.264095689

Accept as Profitability Index is more than 1