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Unformatted text preview: Total $1,044,400 –$9,423,400 $1,755,600 $2,437,400 $8,064,960 The NPV of the project, including the inventory cash flow at the beginning of the project, will be: NPV = –$638,000 + $1,044,400 / 1.14 – $9,423,400 / 1.142 + $1,755,600 / 1.143 + $2,437,400 / 1.144 + $8,064,960 / 1.145 NPV = –$156,055.99 The company should not go ahead with the new table. b. You can perform an IRR analysis, and would expect to find three IRRs since the cash flows change signs three times. c. The profitability index is intended as a “bang for the buck” measure; that is, it shows how much shareholder wealth is created for every dollar of initial investment. In this case, the largest investment is not at the beginning of the project, but later in its life. However, since the future negative cash flow is discounted, the profitability index will still measure the amount of shareholder wealth created for every dollar spent today....
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