12. A project requires an initial investment of `64,000. Its estimated economic life is 5 years. The

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12. A project requires an initial investment of `64,000. Its estimated economic life is 5 years.

The projected annual cash inflows have been estimated at `20,000 p.a. The firm’s cost of capital is 10% and the expected interest rates at which the annual cash inflows can be re-invested in a public sector bank are as follows:

Year 1 2 3 4 5 Rate of Interest 8.25% 8.50% 9% 9.5% 10%

Advise the management whether the project should be accepted or rejected (Use Terminal Value Method).

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