NPV, IRR, alternate methods, unequal cash flows. The following table presents the initial cash outlay and cash flow projections for a new store that TopSports, Inc., is planning to open in Boston, Massachusetts
Initial cash outlay $6,750,000
Net cash inflows—year 1 $2,250,000
Net cash inflows—year 2 $2,250,000
Net cash inflows—year 3 $1,000,000
Net cash inflows—year 4 $700,000
Net cash inflows—year 5 $250,000
Salvage value (at the end of year 5) $750,000
The company uses a discount rate of 8% for such project evaluations. The corporate tax rate is 30%. Assume straight-line depreciation for tax purposes.
Required:
a. What is the net present value of the project?
b. What is the payback period for the project?
c. What is the modified payback period for the project?