Problem:
ABC plc is evaluating project A on which it has recently spent £6000 on R&D, which is irrecoverable. Moreover, the company auditor proposes to charge a contribution to sales force overheads of £3,000 to the project. Unfortunately, for the project to proceed, ABC needs to spend an additional £10000, which can be written down entirely after one year. The cash inflows from the end of year 1 onwards are:
|
End of Year
|
Cash Flows £
|
|
1
|
1250
|
|
2
|
6250
|
|
3
|
9766
|
There is nil scrap value on the asset at the end of the 3rd year. The discount rate for the project is 15% p.a. Ignore taxation. The planning department uses two measures to assess projects: NPV and IRR. Calculate both.