Question $1[5$ marks$]$

Table below summarizes annual cash flows expected from a firm's project at the end of each year:

$\backslash$table$[[$Year$,1,2,3],[$Cash flow,$55,000,242,000,66,550]]$

The project requires an upfront investment cost of $$290,000.$ The required rate of return on the project is $10\%.$ Using the information, answer questions a$)$ and b$)$ below. $($Lecture notes pp$\mathrm{.}11-12,$ p$\mathrm{.}19)-$

a$)$ Determine the $("$simple$")$ payback period for this project. If the firm's investment policy requires all new projects to have a payback period shorter than $3$ years, will the project be accepted?

Answer $($show the steps$/$calculation toward your results$)$:

b$)$ Calculate the Profitability Index of the project. If the firm accepts projects with a Profitability Index of $1\mathrm{.}2$ or higher, will the project be accepted?

Answer $($show the steps$/$calculation toward your results$)$: