A machine will cost £40,000 and will have a useful life of four years, after which time it will be sold for £12,000. Accounting profits (after depreciation) earned by the machine are forecast as follows.

Calculate the following for the investment in the machine.

(a) The payback period

(b) The accounting rate of return

(c) The net present value at a discount rate of 19 per cent. Use the discount factors provided in question 1.

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Year Accounting profit 1 13,800 23 12,200 4 10,400 9,500