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A company is considering a project that will require a cost outlay of $30,000 per year for four years. At the end of the project,
A company is considering a project that will require a cost outlay of $30,000 per year for four years. At the end of the project, the company expects to salvage the physical assets for $30,000. The project is estimated to yield net returns of $60,000 in Year 4, $40,000 in Year 5, and $20,000 for each of the following five years. Alternative investments are available, yielding a rate of return of 14%.
- Compute the net present value of the project. (5 marks)
- Compute the rate of return. (5 marks) Note: Do not use the IRR function on your calculator.
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