Calculate the net present value and payback period

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Question - Project requires an immediate outlay of $2,250,000 and no capital allowances. Annual cash inflows = $955,000 yearly. Material costs = $14,400 in the first year, rising at an annual inflation rate of 7.5% per annum. Other expenses = $18,000 in year 1 and these are expected to fall by 7.5% per annum over the life of the project. Factory space used is currently generating rental income. The rental income = $75,000 per annum throughout.

Corporation tax is paid at a rate of 20% and tax is payable one year in arrears.

The weighted average cost of capital is 10%.

A straight line method of depreciation at a rate of 20% is applied to all noncurrent assets.

Calculate the Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period?

Reference no: EM132016687

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