The directors of Yorkshire Autopoints are considering the acquisition of an automatic car-washing installation.

The initial cost and setting-up expenses will amount to about £140,000. Its estimated life is about seven years, and estimated annual accounting profit is as follows:

QUESTIONS Year 1 2 3 4 5 6 7 Operations cash flow (£) 30,000 50,000 60,000 60,000 30,000 20,000 20,000 Depreciation (£) 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Accounting profit (£) 10,000 30,000 40,000 40,000 10,000 - -

Required rate of return Low risk 20 per cent Average risk 30 per cent High risk 40 per cent Car-washing projects are estimated to be of average risk.

(a) Should the car-wash be installed?

(b) List some of the popular errors made in assessing capital projects.