Maroc Group of Companies (MGC) Ltd is considering an investment in an equipment costing GHȻ80,000. The equipment would attract a 25% annual written down allowance. The operating cash flows are...

Maroc Group of Companies (MGC) Ltd is considering an investment in an equipment costing GHȻ80,000. The equipment would attract a 25% annual written down allowance. The operating cash flows are expected to be as follows:

                                     Year                              GHȻ

                                        1                                30,000

                                        2                                40,000

                                        3                                20,000

The investment would also require additional working capital of GHȻ25,000 in the year of investment which will be recovered at the end of the project. The project is expected to have a useful life of three years after which the investment would be scrapped at a value of GHȻ50,000. The rate of tax on profits is 30%.

The company’s cost of capital is 8%. As a financial manager of MGC:

a) Estimate the cost of capital for MGC

b) Assess the viability of the investment using the Net Present Value (NPV) approach

c) Determine the Modified Internal Rate of Return (MIRR)