An asset can be purchased today at an installed cost of $1,000. It is forecast to generate annual operating net cash inflows of $250 for the next five years and to be sold for $100 at the end of four years. (Assume that there is no income tax and that annual net cash flows occur at the end of each year.)

(a) Draw a time-line showing all the cash flows relating to this asset. (1 mark)

(b) Using a discount rate of 10% per year, what is the present value of the forecast cash inflows? (Give your answer to the nearest cent.) (2 marks) $1,009.79

(c) Using the present value you calculated in part (b), what is the net present value of this project? (Give your answer to the nearest cent.) (1 mark) $9.79

(d) If the asset is depreciated at the rate of $200 per year:

(i) What will be the accounting profit in years 1 to 4? (1 mark) $50.00

(ii) What will be the accounting profit in year 5? (1 mark) $150.00

(iii) What will be the average annual accounting profit? (1 mark) $70.00

(iv) What will be the average investment (based on the assets installed cost and salvage value)? (1 mark) $550

(v) What will be the accounting rate of return? (Give your answer in percentage points to two decimal places.) (1 mark) $70/$550 = 12.73%

(e) If the cash inflows can be reinvested at 10% per year, what will be the investments modified internal rate of return? (1.5 marks) ($1,626.275/1,000)1/5 1 = 10.21%

(f) Assuming (for this part only) that the operating net cash inflows are generated continuously, how many years will it take to pay back the cost of the investment? (Give your answer in years to two decimals.) (1.5 marks) 4.00 years

Answer have been given, need calculation process