Siegfried plc is a coach operator, the Board of which is considering the acquisition of a new station. The initial outlay would be 1.7m, and the period of operation is conservatively estimated at ten years. In real terms, the net cash flows (revenues less expenses) are estimated at 0.4m for the first five years of the project, and 0.5m for the final five years. The company operates a target rate of 16% for accounting rate of return, and a payback criterion of four years.

Required:

provide step by step using Fishers equation, 1 + m = (1 + r)(1 + i) the bellow question:

Appraise the viability of the project using the net present value criterion, assuming that inflation currently stands at 2.6%, and is not expected to change significantly over the next five years.

[consider that the answer should be 655,390. also conider the commet " The statement that inflation is not expected to vary over the next five years, suggests that beyond that date it might change. Suppose that for years 6 to 10 inflation fell to zero: NPV = 484,290"]