Hamstring Inc. is considering a project with the following cash flows.
6. Hamstring Inc. is considering a project with the following cash flows.
The company is reluctant to consider projects with paybacks of more than three years. If projects pass the payback screen, they are considered further by means of the NPV and IRR methods. The firms cost of capital is 9%.
a. What is the projects payback period? Should the project be considered further?
b. What is the projects NPV? Does NPV indicate acceptance on a stand- alone basis?
c. Calculate the projects IRR by using an iterative approach. Start by using the cost of capital and the NPV calculation from part ( a). Does IRR indicate acceptance on a stand- alone basis?
d. What is the projects PI? Does PI indicate acceptance on a stand- alone basis?
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