Calculate (and a computer is allowed provided your workings are exposed) the net present value (NPV), of the following project, which involves construction expenditure over three years of:

Year 1 22million

Year 2 37million

Year 3 34million, including commissioning;

then decommissioning costs are incurred in:

Year 14 15million

& it operates, from construction completion, to produce revenues over 10 years as follows:

Year 4 5million

Year 5 7million

Years 6-12 17million (pa)

Year 13 9million

Note: these revenues derive from the sale of widgets produced. The sale price per widget is 100 today.*

Set up an Excel spreadsheet and calculate:

1. the projects NPV (to the nearest 0.1million), assuming a discount rate of 10%;

& then using the same data:

2. show the projects IRR
3. Prove that the NPV is zero at this Project IRR
4. Draw a cumulative cash flow graph (chart)
5. What is the exact payback period?
6. What is the maximum capital locked up?
7. What unit sales price is required to produce an IRR equivalent to the discount rate? (use your own calculation, or excels goalseek provided you show which parameters were used)
8. What is the NPV if there are no decommissioning costs?
9. Separately, what is the NPV if there is inflation of c. 6% pa (starting in Year4) which can be recouped only via the sales price?
10. Finally, and very importantly, write a paragraph commenting on the projects attractiveness, with your reasoning.