Reference no: EM132899994

Suppose a firm is considering starting a new product line that it expects will yield free cash flows of $106,097 in year 1, $118,995 in year 2, $92,830 in year 3, and $136,850 in year 4. The new line would require the installation today of a new piece of equipment that will cost $270,000. The project is considered by management to be of average risk, and the firm's cost of capital is 10%.

Plot the cash flows from the project on the timeline below:

Year 0 Cash flow
Year 1 Cash flow
Year 2 Cash flow
Year 3 Cash flow
Year 4 Cash flow

Problem 1: What is the project's net present value (NPV)?

Problem 2: What is the project's internal rate of return (IRR)?

Problem 3: What is the project's modified internal rate of return (MIRR)?

Problem 4: What is the project's payback period?