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6 . 2 Manitoba Railroad Limited ( MRL ) is considering spending $ 5 2 2 million to add new locomotives and train cars. It
Manitoba Railroad Limited MRL is considering spending $ million to add new locomotives and
train cars. It is estimated that the trains will last years and have an estimated salvage value of $
million at the end of years. Expected annual revenue increases before depreciation for the first
five years are $ million, for the next five years are $ million, and for the last five years are $
million. MRLs cost of capital is
Required:
a
i Accounting rate of return
ii Payback period
iii Net present value
Calculate: iv Internal rate of return.
b State, with reasons, your recommendation to MRL concerning implementation of this project.
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