Question

Mwongozo Limited has approached you for advice on an equipment to be purchased for use in...

  1. Mwongozo Limited has approached you for advice on an equipment to be purchased for use in a five year project. The investment will involve an initial capital outlay of Shs. 1.4 million and the expected cash flows are given below:

Year

Cash Inflow Shs.

Cash Outflow Shs

1

800,000

65,000

2

750,000

80,000

3

900,000

50,000

4

1,200,000

55,000

5

1,100,000

70,000

The equipment is to be depreciated on a straight line basis over the duration of the project with a nil residual value. The cost of capital and the tax rate are 12% and 30% respectively.

Required

The net present value (NPV) of the investment

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