Companys required rate of return on investment projects

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Reference no: EM13203985

Question :

ABC Shipping provides ferry services in Australia. It is considering a project of buying a new vessel for an extra service. The estimated cost of the new vessel is $5 million. The annual cash flows for the next eight years are expected to be as follows:

Revenues	$5 million per annum
Promotional costs	$1 million in the first year
Operating costs	3 million per annum (excluding depreciation)
Other overheads	0.4 million per annum

At the end of the eight years, the vessel is expected to be worth $1 million. The company's required rate of return on investment projects is 20%. What is the Net Present Value (NPV) of this project? Should this project be accepted?

Reference no: EM13203985

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