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Calculate the accounting rate of return for oil search

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Reference no: EM132941859

Oil Search is considering a major investment in a new oil field in Western Australia. According to initial estimates, the investment outlay would be $2,500,000 and the project would generate incremental cash flows of $500,000 per year for 9 years. The required rate of return by the investors is 7% p.a. compounded annually.

Problem (a) Calculate the Accounting Rate of Return (ARR)

Problem (b) Calculate the Net Present Value (NPV)

Problem (c) Calculate the Internal Rate of Return (IRR)

Problem (d) Based on (b) and (c) above, should this project be accepted? Why?

Reference no: EM132941859

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