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What is the net present value for the project

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A firm is considering an investment project that requires an initial outlay of $5,000,000. The project is expected to provide cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and $1,300,000 in year 4.

a) What is the net present value (NPV) for the project if its cost of capital is 15%? Based on the computed NPV, what does the number represent with respect to the firm's shareholders?

b) What is the profitability index (PI) for the project? What is the relationship between the PI and the NPV?

c) Why is NPV considered to be a superior method of evaluating the cash flows from a project?

Reference no: EM132499155

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