Kerry Melrose is considering an investment in audiovisual equipment costing £10,000 for her training business, Melrose Events. With the help of her accountant, Kerry has done her calculations on a cash basis and is assuming that the following annual cash flows will take place evenly throughout the year. She anticipates that the project will require the business to spend £5,000 on advertising in the first year, but it should generate £1,000 in revenue. The advertising costs are expected to reduce to £3,000 in the second year and generate £2,000 worth of business. In the third and fourth years, no advertising will be required and the revenue generated is expected to be £3,000 in Year 3 and £6,000 in Year 4.

In Year 5 the project will generate £8,000 worth of business, but by the end of the year she expects that the equipment will be obsolete, with no residual value.

(a) Calculate the simple payback period and the net present value for the project using an interest rate of 12%.

(b) Interpret your results and recommend whether Kerry should go ahead with the project, giving reasons to support your advice.

(c) Comment on any financial considerations Kerry should bear in mind.