You should assume that all cash flows occur at the end of the year in which they arise.

Required:

(a) Prepare a statement showing the incremental cash flows of the project relevant to a decision concerning whether or not to proceed with the construction of the new plant.

(b) Compute the net present value of the project using a 10 per cent discount rate.

(c) Compute the payback period to the nearest year. Explain the meaning of this term.