Cashflows internal rate of return & yield to maturity.

Question 2 (Answer all parts) (A) Pharmasol Ltd. is a pharmaceutical company specialising in the development and production of new anti-viral drugs. Based in the Mayo town of Ballina, this company is looking to further expand its operations in Ireland. The board of directors of Pharmasol Ltd. is considering investing in a new project with similar risk to the company's existing operations. All investments of this nature require a payback within three years. Pharmasol Ltd. has already prepared the following estimate of cash flows over the project's five-year lifecycle: Time 0 1 Cashflows |-325,000 72,000 2 3 4 5 112,000 158,000 122,000 76,000 Using these cashflows calculate the internal rate of return on this project. (Hint use 10% and 20%). Recommend if the project should be accepted and explain why you arrived at that conclusion given a cost of capital of 10% for this project. (12 marks) (B) () Sensational Ltd. has 15 year 1,000 fully secured bonds in issue which have a coupon interest rate of 9%. Interest is compounded and paid annually on 31 December. The bonds are due to mature at par on 31 December 2028. These bonds were quoted in the Irish Times on 31 December 2018 at 1,180 Required: Calculate the exact yield to maturity on Sensational Ltd's bonds, assuming that an investor purchased one 1,000 bond on 31 December 2018 at the price quoted that day, (8 marks)