ConstruMax Ltd is a company specialising in smalt reudental property development and are considering a new site based Liverpoot Because of the me uncertainty in the current market they plan to develco the sile over 5 years. The cos are estimated to be 1,200,000 for the land at the outset and 750 000, 750,000 and 600,000 respectively during the building in years 1-3 Sales wit take place in the and releases of the new apartments are scheduled to bring revenues of 800,000 the first year, 800,000 in the second year, 1,250.000 in the third year and 700.000 in years four and five. The company currently has a cost of capital of 9%

Required:

(a) Determine the NPV and the IRR of the project and decide if the project is suitable for the company. For the IRR do not use the IRR function on a spreadsheet but show your workings.

(b) Discuss the merits and limitations of NPV and IRR.

21. ConstniMax d us a company specialist development and are considering a new site in Liverpool. Because of the uncertainly in the current market they can to develop the stesyen The cos are estimated to be 1,200,000 for the land of the outsed 750.000, 150.000 600,000 respectively during the building in years 1-3 Sales will take place in the and releases of the new apartments are scheduled to bring revenues of 60000 the first year, 800,000 in the second year 1,250,000 in the third year and E700.000 years four and five. The company currently has a cost of capital of Required: (a) Determine the NPV and the IRR of the project and decide if the project is suitable for the company. For the IRR do not use the IRR function on a spreadsheet but show your workings. 114 marks) (b) Discuss the merits and limitations of NPV and IRR