Oil Search is considering a major investment in a new oil field in Western Australia. According to initial estimates, the investment outlay would be $2 500 000 and the project would generate incremental cash flows of $500 000 per year for nine years. The required rate of return by the investors is 7%.
(a) Calculate the Net Present Value (NPV)
(b) Calculate the Accounting Rate of Return
(c) Calculate the Internal Rate of Return (IRR)
(d) Should this project be accepted?