Question

Yeoman Limited have been looking into purchasing a number of plants and machinery that will require them investing £850,000. However, they are only considering to borrow 73% of the total amount required, it has been forecasted that the plants will have a life span of 10 years. The annual cash flow for the plants is as follows: 1t year £180,000, 2™d year|£180,000, 3rd year £160,000, 4th year £148,000, 5th year 125,000, 6th year||€142,000, 7# £165,000, 8* year £140,000, 9h £90,000, 10* уear £105,000.£90,000, 10th Every other year £10,000 is to be paid out on routine maintenance, year 5 renewal a licence will cost £20,000, during the ninth year the assets are valued @ £90,000|however, not disposed till year 10 when it has depreciated by another 12%. The annual cash flow for the plants is as follows: 1st year £150,000, 2ndyear|£210,000, 3rd year £190,000, 4thyear £248,000, 5thyear £225,000, 6th year|£242,000, 7th £65,000, 8h year £40,000, 9th £30,000, 10th year £35,000. Every other year £10,000 is to be paid out on routine maintenance, year 5 renewal a licence will cost £20,000, during the ninth year the assets are valued @ £90,000|however, not disposed till year 10 when it has depreciated by another 12%. The borrowing rate per annum was 12%. Calculate the NPV & IRR.

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