6 Investment Appraisal Techniques—Various. The management of Comfy Hotels Ltd is attempting to evaluate the feasibility of investing £125,000 in upgrading and extending its bar, kitchen and dining room facilities. The scheme is assumed to have a ten-year life, a scrap or terminal value of nil and is expected to increase annual net profits by £15,000, after charging annual depreciation of £12,500. For a project of this type, management usually prefers a payback period of less than 6 years. Using a cost of capital of 12 per cent, where appropriate, and ignoring taxation, you are required to determine:

(a) Payback period (PPB);

(b) Average accounting rate of return (AARR);

(c) Net present value (NPV);

(d) Internal rate of return (IRR);

(e) The financial acceptability of the project, based upon the above data.