Question no 1.

Cambridge Inc. is considering the replacement of two old machines with new, more efficient machine. It has determined that the relevant after tax incremental operating cash flows of this replacement proposal are as follows. (20 marks)

year

0

1

2

3

4

5

6

7

8

Cash flows

(404424)

(120200)

95840

92580

105200

84801

82100

80200

79850

You are required to calculate the following

1.The Net present value of the project if the cost of capital is 14%

2.What is IRR

3.Calculate the P.I of the project

4.Calculate the Discounted Payback period