A company has made an investment of 550 000 in a new vehicle.

Further details:

Expected useful life 5 years (straight line depreciations)

Savage value ..............................50 000

Cost of capital ..................10% after tax

Year 1 ......................................220000

Year 2 ......................................200000

Year 3.......................................120000

Year 4 ......................................110000

Year 5 ......................................50 000

Required:

Time value of money is omitted from the payback method. Can you compute suing a method that accounts for the time value of money? On the basis of this calculation, should the project be accepted? Explain?