Hasbro Plc, an airline navigation supplier, is in the process of buying a start-of-the art navigation software. The initial investment in the new software is £130,000. The annual cash flows are expected to be: Year 1 £38,000 Year 2 £43,000 Year 3 £50,000 Hasbro Plc employs a cost of capital of 6%. The rate of inflation is expected to be 3% for the duration of the project. Required: a) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken by the company. b) Calculate the NPV of the project using the real rate of return as the discount rate (round up to 2 decimal places), and state clearly whether the project should be undertaken by the company. c) Discuss the likely impact of your outcomes in parts a) and b) above on Hasbro Plc.
Hasbro Plc, an airline navigation supplier, is in the process of buying a start-of-the art navigation software. The initial investment in the new software is £130,000. The annual cash flows are expected to be:
Year 1 £38,000 Year 2 £43,000 Year 3 £50,000
Hasbro Plc employs a cost of capital of 6%. The rate of inflation is expected to be 3% for the duration of the project.
Required:
a) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken by the company.
b) Calculate the NPV of the project using the real
c) Discuss the likely impact of your outcomes in parts a) and b) above on Hasbro Plc.
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