Financial Management

Question

Rosemount Energy Company is installing new equipment at a cost of $20000000. This project is expected to generate the following tax net income and cash flow over its five year life:

Year After- tax Net Income $ After-tax Cash flow $

1. -1910000 2090000

2. 1100000 5100000

3. 4250000 8250000

4. 8625000 12652000

5. 10000000 14000000

The company depreciate this equipments using the straight-line method over the life of the project.The company cost of capital is 10 % per annum.

1.) What is the project accounting rate of return (ARR)?

2) What is the Project's Payback period ?

3) What is the Project's net present value (NPV) ?