Question: A particular project is estimated to have an economic life of 5 years and generate yearly incomes as shown below. The initial investment is $100,000 and the annual operating costs are estimated to be $9,000.
Income year one $25,000
Income year two $35,000
Income year three $25,000
Income year four $60,000
Income year five $110,000
The appropriate discount rate for this project is 8%.
(a) Draw a cash flow diagram of the project.
(b) Use discounted cash flow techniques to estimate whether the project should go ahead.
(c) What is the IRR of this project?