Question 1 [5 pts]

Table below summarizes annual cash flows expected at the end of each year from a firms project that requires an upfront investment cost of $291,000. Using the information provided, answer questions (a) and (b) below.

Year	1	2	3	4
Cash flow	37,000	55,000	55,000	366,000

A) If the firms investment policy requires all new projects to have a payback period of 3 years or less, will the above project be acceptable?

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

B) Suppose the firm accepts any projects with a profitability index of 1.2 or higher. The firm has estimated that the required rate of return on the project is equal to 10%. Determine whether the project can be accepted.

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