IRR

VIP Co | ACCA Specimen (CBE)

Vip Co, a large stock-exchange listed company, is evaluating an investment proposal to manufacture Product W33, which has performed well in test marketing trials conducted recently by the company's research and development division. Product W33 will be manufactured using a fully-automated process which would significantly increase noise levels from Vip Co's factory. The following information relating to this investment proposal has now been prepared:

 

Initial investment

$2 million

Darn Co

Darn Co has undertaken market research at a cost of $200,000 in order to forecast future cash flows of an investment project with an expected life of four years, as follows:

Warden Co (12/11, amended)

Warden Co plans to buy a new machine. The cost of the machine, payable immediately, is $800,000 and the machine has an expected life of five years. Additional investment in working capital of $90,000 will be required at the start of the first year of operation. At the end of five years, the machine will be sold for scrap, with the scrap value expected to be 5% of the initial purchase cost of the machine. The machine will not be replaced.