Problem:

A new project will require development costs of $75 million at time zero and $120 million at the end of 2 years from time zero with incomes of $50 million per year at the end of years 1, 2 and 3 and incomes of $80 million per year at the end of years 4 through 10 with zero salvage value predicted at the end of year 10.

Required:

Question 1: Calculate the rate of return for this project. Elucidate in detail and specify all computation and methods.

A) 38.2%

B) 44.1%

C) 42.4%

D) 49.5%