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A group of fanners in Inverness is considering building an irrigation system from a water supply in some nearby mountains. They want to build a concrete reservoir with a steel pipe system. The first cost would be £200 000 with (actual) annual maintenance costs of £2000. They expect the irrigation system will bring them £22 000 per year in additional (actual) revenues due to better crop production. Their real pound ALARR is 4% and they anticipate inflation to be 3% per year.

Assume that the reservoir will have a 20-year life.

(a) Using the actual cash flows, find the actual IRR on this project.

(b) What is the actual ALARR?

(c) Should they invest?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M92184575

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