Wetday is evaluating three projects: the Storm, the Cloud, and the Downpour. The company’s cost of capital is 12%. These projects have the following cash flows. LO1 Storm Cloud Downpour Year 2 ‘3 £

O (Initial outlay) (18,000) (12,000) (13,000)

Cash inflow 1 4,000 5,000 4,000 2 5,000 2,000 4,000 3 6,000 3,000 4,000 4 7,000 2,500 s 4,000 5 8,000 3,000 4,000 Required:

Calculate

(i) the payback period

(ii) the accounting rate of return (assume cash flows equal profits)

(iii) the net present value

(iv) the internal rate of return.