Marsh Limited has investigated the possibility of investing in a new machine. The following data have been extracted from the report relating to the project: 

Cost of machine on 1 January Year 6: £500,000.
Life: four years to 31 December Year 9.
Estimated scrap value: Nil.
Depreciation method: Straight-line.

The company’s required rate of return is 15%. 

Required:

Calculate the return the machine would make using the following investment appraisal methods:

(a) Payback
(b) Accounting rate of return
(c) Net present value
(d) Internal rate of return. 

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Year 78969 10 Accounting profit after tax £000 100 250 250 200 Net cash flows £000 50 200 225 225 100 (excluding the initial cost)