- 20 Marks
BMF – Nov 2020 – L1 – SB – Q5 – Investment Decisions
Evaluate the investment project using IRR and advise management on the project feasibility.
Question
Uhuru Nigeria Limited wants to buy a new item of equipment which will be used to improve service delivery to its customers. Using the internal rate of return (IRR) method of investment appraisal, you are required to evaluate the project and advise the management of the company. Estimated cash flows from the project are as provided below:
| Year | Cash Flow (N) |
|---|---|
| 0 | (400,000) |
| 1 | 140,000 |
| 2 | 150,000 |
| 3 | 170,000 |
| 4 | 190,000 |
The expected minimum required rate of return of the company is fixed at 25%.
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