A company is evaluating an investment project requiring an outlay of 1.4million on new machines (Year...

 

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A company is evaluating an investment project requiring an outlay of £1.4million on new machines (Year 0). The machines would be expected to have a useful working life of six years, with a residual value of £80.000 (Year 6), and would be depreciated on a straight line basis Estimates of cost savings (net of depreciation of the new machines) arising from the investment are REQUIRED (a) (b) 0 Calculate in relation to the investment project the: average annual accounting rate of return; (0) Year 1 2 3 to 6 (i) £'000 20 50 80 per annum payback period, discounted cash flow internal rate of return Discount factors Year 5% 1 2 3 4 5 6 10% 15% 0.952 0.909 0.870 0.907 0.826 0.756 0.864 0.751 0.658 0.823 0.683 0.572 0.784 0.621 0.497 0.746 0.564 0.432 (5 marks) (6 marks) (6 marks) State whether the investment project is financially worthwhile if the company's cost of capital is 8% per annum. Explain your reasoning (3 marks) (Total 20 marks) A company is evaluating an investment project requiring an outlay of £1.4million on new machines (Year 0). The machines would be expected to have a useful working life of six years, with a residual value of £80.000 (Year 6), and would be depreciated on a straight line basis Estimates of cost savings (net of depreciation of the new machines) arising from the investment are REQUIRED (a) (b) 0 Calculate in relation to the investment project the: average annual accounting rate of return; (0) Year 1 2 3 to 6 (i) £'000 20 50 80 per annum payback period, discounted cash flow internal rate of return Discount factors Year 5% 1 2 3 4 5 6 10% 15% 0.952 0.909 0.870 0.907 0.826 0.756 0.864 0.751 0.658 0.823 0.683 0.572 0.784 0.621 0.497 0.746 0.564 0.432 (5 marks) (6 marks) (6 marks) State whether the investment project is financially worthwhile if the company's cost of capital is 8% per annum. Explain your reasoning (3 marks) (Total 20 marks)