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# ABC plc is evaluating project A on which it has recently spent 6000 on R&amp;D, which is irrecoverable.

1. ABC plc is evaluating project A on which it has recently spent £6000 on R&D, which is irrecoverable. Moreover, the company auditor proposes to charge a contribution to sales force overheads of £3,000 to the project. Unfortunately, for the project to proceed, ABC needs to spend an additional £10000, which can be written down entirely after one year. The cash inflows from the end of year 1 onwards are:
End of Year Cash Flows £
1 1250
2 6250
3 9766
There is nil scrap value on the asset at the end of the 3rd year. The discount rate for the project is 15% p.a. Ignore taxation. The planning department uses two measures to assess projects: NPV and IRR. Calculate both.

1. ABC plc is evaluating project A on which it has recently spent Ð6000
on R&D, which is irrecoverable. Moreover, the company auditor proposes
to charge a contribution to sales force overheads of Ð3,000 to the
project. Unfortunately, for the project to proceed, ABC needs to spend
an additional Ð10000, which can be written down entirely after one
year. The cash inflows from the end of year 1 onwards are:
End of Year Cash Flows Ð
1 1250
2 6250
3 9766
There is nil scrap value on the asset at the end of the 3rd year. The
discount rate for the project is 15% p.a. Ignore taxation. The planning
department uses two measures to assess projects: NPV and IRR. Calculate
both.

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