The internal rate of return of a project is the rate that leads to a net present value that is:

high enough for management to accept.

the highest of all investments being considered.

equal to zero.

as low as will be accepted by management.

Home Decor Pty Ltd is considering investing in a new machine to assemble its furniture. The machine is estimated to cost $150,000 which can last for 5 years before it becomes unreliable and can be sold for scrap at $12,000. The project is estimated to bring in additional $40,000 net cash inflow annually. Although the company expects there will be an annual growth from year 2 onward, it also estimates the growth will be offset by a 2% annual inflation . The net cash flow in year 5 also includes the scrap value.

The company plans to fund the purchase of the new machine using a bank loan with an interest rate of 13%.

8 points

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a. What is the ARR for this project?

Case sensitive. Type in 20.00 (two decimal places) for 20%.

b. Howlongisthepaybackperiodforthisproject?

Case sensitive. Type in 7.00 (two decimal places) for 7 years.

c. What is the NPV for this project? $

%.

years. . C

ase sensitive. Type in 120,000.00 (two decimal places) for $120,000.00, or -120,000.00 for negative $120,000.00.

d. WhatistheIRRforthisproject? %.

Case sensitive. Type in 20.00 (two decimal places) for 20%.