A small company set up a new investment project on 1 January 2017. The initial investment on that date was £2.5 million with a further £2 million required after nine months, on 1 October 2017.
It is expected that from 1 January 2019 to 1 January 2032 inclusive, the company will receive net income from the project once a year. The net income on 1 January 2019 is expected to be £0.3 million, increasing by £0.1 million per annum on 1 January of each subsequent year.
The company expects to sell the business on 31 December 2032 for £3 million.
Calculate the net present value of the project on 1 January 2017 at a rate of interest of 12% per annum effective.
(Total 6 marks)
2 answers