1. A firm is evaluating a project that yields the following after-tax

net cash flows: $7,000 a year for 8 years and -$3,000 at year 9. The project will incur an initial cost of $30,000. The cost of capital for the project is 12%.
a. What is the project’s NPV?
b. What is the project’s profitability index?
2. A machine that cost $80,000 is expected to have a useful life of 10 years. Its salvage value at the end of the period is estimated to be zero. The machine is expected to save the company $16,000 a year before taxes and depreciation. Depreciation is based on the straight line method. The tax rate is 40%.
a. What is the IRR of the investment?
b. What is the project’s payback period?
c. What is the project’s discounted payback period?

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