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d. ABC Ltd is considering project PA205 for the coming financial year. Project PA205 entails an...

d. ABC Ltd is considering project PA205 for the coming financial year. Project PA205 entails an immediate capital investment of GH¢74,776 and will produce the following annual net cash flows in real terms: Year 1 2 3 4 5 Cash flow (GH¢) 5,000 10,500 25,000 28,000 30,000 The company’s required rate of return is 8.7%. Required (Covert your calculation to a nearest whole number in cedis) i. Appraise Project PA205 using the NPV criteria.      (8 marks) ii. Advise the management of ABC Ltd whether or not the project should be accepted (2 marks)          

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Answer #1

npv is present value of cashflows less initial investment

year cashflows [email protected]% pv of cf
0 -74776 1 -74776
1 5000 0.9199632015 4599.816007
2 10500 0.8463322921 8886.489067
3 25000 0.7785945649 19464.86412
4 28000 0.7162783486 20055.79376
5 30000 0.6589497227 19768.49168
NPV -2000.545361

npv of the project is -2000.54

we should advice managment not to accept the project because under npv rule we should reject project when npv is negitive

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