Janet Pascoe owns a small recruitment agency, and is thinking of buying a new accounting, management...

Transcribed Image Text:

Janet Pascoe owns a small recruitment agency, and is thinking of buying a new accounting, management and database system for her business leads, employer and client records. Her accountant has produced a five year target for her, which shows that her cash flows are likely to diminish in the first two years (due to set up costs etc.), but will show positive results thereafter. The figures are as follows: Year 0- Net cash flows: Purchase of computer and software Year 1 + Year 2 Year 3 → Year 4 4 Year 5 4 W £ P (10,000) (4,000)- (1,000) 5,100 4² M 8,000 10,000 - 4² 14 Required: a) Calculate the NPV of this project using a discount rate of 12%. Comment on whether you think Janet would be advised to go ahead with the project. < (4 marks) 41 b) If the NPV at 20% is (£3,197.1), estimate the Internal Rate of Return on the project. [Note, that is NPV equals to - £3,197.1 at 20%.] (2 marks)< c) Comment, giving reasons, on whether your result for the IRR is what you would have expected before you carried out your calculation in part b). (4 marks) Janet Pascoe owns a small recruitment agency, and is thinking of buying a new accounting, management and database system for her business leads, employer and client records. Her accountant has produced a five year target for her, which shows that her cash flows are likely to diminish in the first two years (due to set up costs etc.), but will show positive results thereafter. The figures are as follows: Year 0- Net cash flows: Purchase of computer and software Year 1 + Year 2 Year 3 → Year 4 4 Year 5 4 W £ P (10,000) (4,000)- (1,000) 5,100 4² M 8,000 10,000 - 4² 14 Required: a) Calculate the NPV of this project using a discount rate of 12%. Comment on whether you think Janet would be advised to go ahead with the project. < (4 marks) 41 b) If the NPV at 20% is (£3,197.1), estimate the Internal Rate of Return on the project. [Note, that is NPV equals to - £3,197.1 at 20%.] (2 marks)< c) Comment, giving reasons, on whether your result for the IRR is what you would have expected before you carried out your calculation in part b). (4 marks)

Answer rating: 100% (QA)

a To calculate the Net Present Value NPV you can use the formula NPV Net Cash Flow 1 Discount RateYe... View the full answer