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Calculate the project鈥檚 NPV and ARR?


Investment: $1.8 million on a new biscuit making machine in order to expand the company麓s market share.
The financial details are as follows:

Initial outlay : $1.8 million
Life : 10 years
Net cash flow : Years 1 to 6 +$500 000 per year
Years 7 to 10 + $300 000 per year
Residual value : $0.5 million

The company uses straight-line depreciation and has a target rate of returns, both ARR and NPV, of 18%, and a payback criterion of 5 years.

Required:
Calculate the ARR in line with company practice
Calculate the project鈥檚 payback
Calculate the project鈥檚 NPV

Is it a good investment? On the basis of calculations, I would like to formulate the investment decision advice, and justify my decision to the compamy麓s Director.

Notes: Ignore tax
Show detailed calculations

This is a very interesting problem. Best of luck in doing your own homework. This forum is not intended to give readers homework assignments. It is meant for asking intelligent questions in order to get answers from knowledgeable people..

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