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RST Limited is considering investing in a new product line. The initial cost is EUR 400,000, and the expected useful life is 6 years. The
RST Limited is considering investing in a new product line. The initial cost is EUR 400,000, and the expected useful life is 6 years. The salvage value at the end of the useful life is EUR 40,000. The cost of capital is 13%.
Projected Annual Cash Flows:
Year | Cash Flow |
1 | 70,000 |
2 | 80,000 |
3 | 90,000 |
4 | 100,000 |
5 | 110,000 |
6 | 120,000 |
Requirements:
- Compute the payback period.
- Calculate the NPV.
- Determine the IRR.
- Evaluate the ARR.
- Based on the financial metrics, should RST Limited proceed with the investment? Provide justification.
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