The Griffin Company is launching a maritime project by purchasing a small, previously owned cargo ship for $2M which will be used to ferry iron ore across the Great Lakes The ship will be depreciated over four years straight line. Freight revenue and expenses from the venture are forecast below
Year______________ Revenue __________ Cash Expenses
1...........................$0.5M........................$0.8M
2...........................$1.0M........................$0.8M
3........................... $1.5M........................$0.9M
4............................ $2.0M....................... $1.0M
Calculate the project's ARR and comment on its likelihood of acceptance by management. Also estimate project cash flows and calculate its NPV and IRR at a 5% cost of capital.