Question: ABC Ltd. has the following cash flows for a potential investment: Initial outlay: $8,000 Year 1: $2,000 Year 2: $3,000 Year 3: $3,500 Year 4:

ABC Ltd. has the following cash flows for a potential investment:

  • Initial outlay: $8,000
  • Year 1: $2,000
  • Year 2: $3,000
  • Year 3: $3,500
  • Year 4: $4,000

The firm's required rate of return is 14%.

Requirements:

  1. Calculate the NPV.
  2. Determine the IRR.
  3. Compute the payback period.
  4. Discuss the implications if the project's life is extended by 2 years with additional inflows of $1,500 each year.

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