Question 5(31) Agrico Ltd is a manufacturer of agricultural products.

Question 5 [31] Agrico Ltd is a manufacturer of agricultural products. The company intends to invest in the development and production of a new type of multipurpose fertilizer. The initial research and development costs are R7 800 000. The company's cost of capital is 11% and it estimates the after-tax operating cash flows as set out in the table below. Year Cash flows 2 500 000 3 500 000 3 200 000 2 400 000 1 2 3 4 Required: 5.1. Use the information provided to calculate the net present value of this investment project. Use 20% as an alternative cost of capital. (20) 5.2. Calculate the internal rate of return for the project. 5.3. Would you recommend to Agrico to invest in this new product? Give reasons for your recommendation, (4) Show all calculations. TOTAL: [155]