QUESTION 7

Your assistant has calculated 2 different IRR's, 4% and 8%, which one is more likely? Explain.

When can we use IRR to evaluate a project?

QUESTION 6

Benny currently works for WasteMagic Inc, a company that collects e-waste and turns it magically into garden equipment. The company is thinking about opening another manufacturing plant in Adelaide. The company employed ConsultMe to conduct a feasibility study. The cost of this study was $10,000 and provided the following information:

Revenue resulting from the new plant is expected to be $ 749,000 per year and yearly costs to be $ 401,000. The revenue from another plant the company owns just outside of Adelaide is expected to go down by $19,000/yr. The new plant is expected to operate for 7 years, and both the revenues and costs are expected to remain constant.

The plant will costs $1,449,000 and ATO rules require that the plant be depreciated to zero over 7 years. At the end of the 7 years, the company expects to be able to sell the plant for $ 73,000. The project will also require an initial working capital of $5,000, which will be recovered at the end of the project.

Assuming a tax rate of 35% and a required return of 6% p.a., what is the expected NPV? Round your answer to two decimals.