Solve Without Excel

No calculator

Show all work

You are evaluating a project that costs $3,000 at the beginning of the first year (at t=0). The project has zero cash flows in the first three years (t=1, t=2 and t=3). The first positive cash flow is equal to 300 (at t=4), and the cash flows are expected to grow at a rate of 14% a year for 4 years (i.e., from t=4 to t=5, from t=5 to t=6, from t=6 to t=7 and from t=7 to t=8). Then, the growth rate drops to 3% and stays there forever (i.e., the cash flows increase at 3% starting from t=8 to t=9, and so on). The discount rate is equal to 12%. All the figures are in millions of dollars.

a. What is the NPV of the project?

b. What is the Profitability Index of the project?

c. Write down the equation for the IRR.

d. Is the NPV function upward-sloping, downward-sloping or does it have a different shape? (2 sentences at most.)