Tropic Investments is considering a project involving an initial cash outlay for an asset of £200,000. The asset is depreciated over five years at 20% p.a. (based on the value of the investment at the beginning of each year). The cash flows from the project are expected to be:

• What is the payback period?

• What is the return on investment (each year and average)?

• Assuming a cost of capital of 10% and ignoring inflation, what is the net present value of the cash flows?

• Should the project be accepted?

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Inflow Outflow Year 1 75,000 30,000 Year 2 90,000 40,000 Year 3 100,000 45,000 Year 4 100,000 50,000 Year 5 75,000 40,000