Question 5 a) i. Eastern plc is considering purchasing a factory for 50,000. It expects to receive net cash flows of 9,000 in each of the next eight years. It is anticipated that it will be possible to dispose of the factory for 30,000 at the end of the eighth year. If the cost of capital is 12 per cent, what is the Net Present Value of this project? Ignore any tax considerations. ii. Your firm has a retirement plan that matches all employee contributions with employer contributions on a two-to-one basis. That is, if an employee contributes 1,000 per year, the company will add 2,000 to make the total contribution of 3,000. The firm guarantees a fixed 6 per cent return on the funds. The annual pension payment will depend on the sum available in the fund at the time of retirement. Alternatively, you can provide for retirement yourself, and you think you can earn 9 per cent on your money. The first contribution will be made one year from today. At that time and every year thereafter, you will put 2,500 into the retirement account, the same amount as you would have contributed to the company pension fund. You plan to retire in 20 years. Are you better off participating in the company scheme or making your own arrangements? Explain the basis of your answer (ignore any tax considerations). b) Explain what is meant by the internal rate of return and discuss its attraction as an investment decision rule as well the problems associated with its use. c) Briefly discuss the incremental IRR rule