Question $4(9$ marks$)$

ABC Inc. is considering investing in the following capital project that is expected to provide $10$

years of cash flows $(=$ sales revenue net of operating costs$).$ The expected year$-$end cash flows

are as follows:

Project A: Years $1-2$ and $$250,000($Years $3-10)$

The required rate of return for the project is $10\%$ per year. Suppose Project A$\text{'}$s initial expenditure

is $$1,000,000.$

$($a$)$ Use the net present value $($NPV$)$ method to determine whether the project should be taken.

$(4$ marks$)$

$($b$)$ If ABC uses other decision rules such as IRR, would it arrive at the same decision as NPV$?$

Explain.

$(2$ marks$)$

$($c$)$ Put down the numeric formula $($NO calculation of the final answer is required$)$ for Project

A$\text{'}$s internal rate of return $($IRR$)$ and state the condition under which Project A will be

REJECTED.

$(3$ marks$)$