A company, Choosewell, has £30,000 to spend on capital investment projects. It is currently evaluating three projects. The initial capital outlay is on a piece of machinery that has a four-year life. Its cost of capital is 9%.

Required:

Calculate

(i) the payback period

(ii) the accounting rate of return

(iii) the net present value

(iv) profitability index

(v) the internal rate of return.

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Ready Initial capital outlay (30,000) Steady (15,000) Go (15,000) Inflows Outflows Inflows Outflows Inflows Outflows Year 1 36,000 24,000 25,000 16,000 16,000 8,000 234 2 36,000 14,000 18,000 11,000 13,000 6,500 3 32,000 26,000 17,000 12,000 12,000 6,000 4 4,000 5,000 3,000 4,000 6,000 6,000