Reference no: EM132967386

MSC Devine is launching a maritime project by purchasing a small, previously owned cargo ship for R2.5 million which will be used to ferry iron ore across the Great Lakes. The ship will be depreciated over four years straight-line. Freight revenues and expenses from the venture are forecast as follows:

Year       Revenue           Cash expenses

1            500000               800000

2          1000000                   800000

3           1500000                  900000

4           2000000                1000000

Required:

Problem 1: Calculate the project's ARR and comment on its likelihood of acceptance by management. Also estimate project cash flows and calculate its NPV and IRR at 9% cost of capital.