Question 6 (10 marks) (a) Rosemount Energy Company is installing new equipment at a cost...
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Question 6 (10 marks) (a) Rosemount Energy Company is installing new equipment at a cost of $20,000,000. This project is expected to generate the following after tax net income and cash flow over its five-year life: Year After-tax Net Income ($) 1 2 3 -1,910,000 1,100,000 4,250,000 8,625,000 10,000,000 After-tax Cash Flow ($) 2,090,000 5,100,000 8,250,000 12,652,000 14,000,000 4 The company depreciates this equipment using the straight-line method over the life of the project. The company's cost of capital is 10% per annum. i. What is the project's accounting rate of return (ARR)? (3 marks) Click or tap here to enter text. ii. What is the project's payback period? (3 marks) Click or tap here to enter text. iii. What is the project's net present value (NPV)? (2 marks) Click or tap here to enter text. (b) Differentiate between independent projects and mutually exclusive projects. (2 marks)
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