A large oil company has been invited to get involved in a project to build a parking facility in the centre of Frankfurt. The project includes a 450-car public parking lot, a 200-car garage and a petrol station covering 1,000 sq. m. It will take one year to build, and a 30-year concession to run the facility will be granted by the municipality (after construction has been completed). Total capital expenditure will be

€8,400,000 and working capital will be nil. The annual income statement for the project after the construction looks like this:

Costs Revenues Operating costs 670,000 Parking places 1,680,000 Depreciation and amortisation 280,000 Garage 770,000 Income tax expense 1,000,000 Petrol station 800,000 Net profits 1,300,000 Total 3,250,000 Total 3,250,000 Calculate the average of the accounting returns on the project, the discounted payback ratio, the net present value at 10% and the internal rate of return. Why is the IRR not equal to the average of the annual returns on the project?

AppendixLO1