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- n 0 1 2 3 4 5 6 7 8 9 10 A -$250 $60 $970 B -$200 $90 $90 $60 $60 Net Cashflow с -$70 $20 $10 $5 -$50 $60 $50 $40 $30 $20 $10 D -$300 $270 $250 -$129 -$20 $120 $40 E -$90 -$100 -$50 $0 $150 $150 $100 $100Calculate : Internal rate of return for Project A. (Use interpolation technique)(question3 c,d) c) Calculate the profitability index (PI) for each project d) Calculate the internal rate of return (IRR) for each project.
- what is accounting rate of return for project B ?How can we compute the mean return for each project?QUESTION 1 The accounts manager of VM Gym & Sports has been asked to evaluate a potential capital investment of a set of rowing machines. The following data is available for cach project: Machine 1 Machine 2 RM RM Cost (immediate outlay) 500,000 245,000 Expected annual profits (losses) Year 1 I. 80,000 84,000 Year 2 90,000 136,000 Year 3 116,000 126,000 Year 4 146,000 150,000 Annual running costs 30,000 24,000 Annual service costs 36,000 20,000 Estimated residual value equipment 40,000 30,000 *The total annial running and service costs for Machine 2 in the first year is RM 36,000 The committee has estimated a cost of capital of 30% and employs the straight-line method of depreciation for all fixed assets when calculating net profit. The following discount factors are given: Year Cost of capital 10% 50% 0.909 0.667 2. 0.826 0.444 3. 0.751 0.296 4. 0.683 0.198
- One must know the discount rate of an investment project to compute its: NPV, IRR, PI and payback period. NPV and IRR. Payback period and IRR. NPV and PI.c) Calculate the profitability index (PI) for each project d) Calculate the internal rate of return (IRR) for each project.Note : No need excel formula !Which provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR? Explain.