Mrs. Valentina Bartoli, the capital budgeting manager of Severini Company (SC), is evaluating a five-year investment project with the following cash flows. SC uses a risk-adjusted weighted average cost of capital of 13.53 percent to evaluate this investment. Mrs. Bartoli considers a target payback period (PBP) of 2.50 years, a target discounted payback period (DPB) of 3.25 years, and a target accounting rate of return (ARR) of 25 percent to accept or reject this project. The cash outflow of this project today is $11,750,000. The project's first year's after-tax cash inflow is $4,950,000, which grows at 1.86% per year. The project is closed at the end of year 5. Please use the capital budgeting techniques to calculate the payback period, Discounted Payback, Net Present Value, Internal Rate of Return, Modified Internal Rate of Return PI, and accounting rate of return. Prepare a table to summarize your results and provide a short paragraph of comments/interpretations concerning your results.

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Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.