ABCD Corp. is expecting a new projectto start producing cash flows beginning at the end of this year. They expect $640,000, $670,000, $775,000, $800,000, and $735,000at the end of each year for the next 5 years, respectively. Investors require a rate of return of 12.25%per yearand the initial investment is $1,250,000. The firm requires all projects to have a 2-year payback period.

1. What is the net present value of this cash flow stream? Round to the nearest $0.01.

2. What is the IRR of the project? Round to the nearest 0.01%

3. What is the payback period of the project? Round to the nearest 0.01.

4. Based on your answers in Questions 3 through 5, should the firm accept the project? Why or why not?

5. Which one of these activities represents a source of cash?

A. Increasing accounts receivable

B. Decreasing accounts payable

C. Decreasing common stock

D. Increasing fixed assets

E. Decreasing inventory

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