Division ABC is currently generating an ROI of 12%. It is considering a new project. This requires an investment of $1.4 million and expected to yield net cash inflows of $460,000 per annum for the next four years. There is no salvage value at the end of fourth year.

The company has a cost of capital of 8%. The depreciation method is straight line. There are no taxes.

1. Calculate the Internal Rate of Return for the project. Should we accept or reject the project? Explain. (use your financial calculator to calculate IRR, or E)

2. Calculate and comment on the Net Present Value of the project. Should we accept or reject the project? Explain.

3. Calculate and comment on the Return on Investment ( ROI) for the project next 4 years using straight line depreciation method? Explain your findings.

4. Calculate and comment on the Residual Income (RI) for the project next 4 years using straight line depreciation method. Explain your findings.

5. Assume that the division changes managers every year. Is there a way to be fair to each manager using RI and the annuity depreciation method? Explain