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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:

  1. Compute the payback period.
  2. Calculate the NPV.
  3. Determine the IRR.
  4. Evaluate the ARR.
  5. Based on the financial metrics, should RST Limited proceed with the investment? Provide justification.

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