a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=$4000[1-(1.12)^-6]/0.12
=$4000*4.111407324
=$16445.63
NPV=Present value of inflows-Present value of outflows
=$16445.63-$15750
=$695.63(Approx).
2.Let irr be x%
At irr,present value of inflows=present value of outflows.
15750=4000/1.0x+4000/1.0x^2+...........+4000/1.0x^6
Hence x=irr=13.55%(Approx).
3,Since npv is positive and also irr is greater than the cost of capital;project must be accepted.
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