QUESTION 1 (20 MARKS) Camden Limited is company which specializes in the manufacture of large scale replacement parts fo

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QUESTION 1 (20 MARKS)
Camden Limited is company which specializes in the manufactureof large scale replacement parts for passenger airplanes. Thecompany is considering investing R40million in equipment which willgenerate a net cash flow of R16million per year for four years. Thecompany is able to depreciate the equipment at a rate of 20% peryear on a straight-line basis for tax purposes. The market value ofthe equipment at the end of four years is expected to be R15million. The difference between the market value and theequipment’s tax value (cost less depreciation to date of sale) istermed a recoupment which in this case is subject to tax. Thecorporate tax rate is 28%. The company’s cost of capital is14%.
Required: Calculate the project’s NPV and IRR of the project.Note: show all calculations.