Question 1

Given the following information and options, calculate how many years this project should be run before it is retired. Assume the cost of capital is 10% p.a. Maximum life is five years.

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Net Cash Flows ($) (10,000) 2,200 3,000 3,500 2,500 2,000 Retirement Values ($) 6,000 5,000 4,000 3,000 1,000

One year.

Three years.

Five years.

Cannot be determined.

Four years.

Two years.