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 ARR of the project, taking inflation into account.