A passenger coach company is considering the purchase of a new fleet of luxury coaches. The coaches will cost £220,000 in total and will have a useful life of four years, after which time they will be sold for a total of £20,000. Forecast profits before depreciation from the operation of the coaches are as follows.

Calculate the following for the proposed investment:

(a) The payback period

(b) The net present value of the cash flows, using a discount rate of 15 per cent

(c) The internal rate of return

(d) The accounting rate of return. The discount factors you will need are as follows.

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Year 1 234 90,000 85,000 70,000 65,000