Marsh Limited has investigated the possibility of investing in a new machine. The following data have been extracted from the report relating to the project:
a. Cost of machine on 1 January Year 6: £500,000.
b. Estimated scrap value at end of Year 5: Nil.
|
Year |
Net cash flows £000 |
|
1 |
50 |
|
2 |
200 |
|
3 |
225 |
|
4 |
225 |
|
5 |
100 |
The company’s cost of capital is 8%.
Required
Evaluate the acceptability of the project using the net present value method of investment appraisal.