Calculate the npv and profitability index

Reference no: EM1310640

A team needs to decide if they should sign on a prospect to a 5-year contract. To go ahead they must spend $500,000 for a signing bonus and $5,000,000 spread over five years. The prospect will net the company an estimated $2,000,000 each year over the 5-year life of the contract. The teams cost of capital is 17%. Assume that cash inflows occur at the end of the year.

Calculate the NPV, and the Profitability Index (PI) for this project. Should this project be undertaken?

Reference no: EM1310640

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