actuarial science

Question 3 [12 marks]. Jeanius ple is considering an investment of 10 million in a new trouser production plant. The project business plan is based on the following assumptions: The project will start on 1 January 2020. The initial investment is assumed to be incurred at the start of the project. Production will start on 1 January 2021 and continue for 25 years. Production will be 2 million pairs of trousers each year and profit will be 0.75 per pair. Profits occur at the end of each calendar year. While in use, the plant will incur maintenance costs of 100,000 at the beginning of each year from 2021 onwards. [10] (a) Determine the Net Present Value of the project at 1 January 2020 at an effective interest rate of 10% pa.. (b) The company has an investment hurdle rate of 9.0% p.a.. Should the company proceed with the investment? [2]