A company, Fairground, has a choice between investing in one of three projects: the Rocket, the Carousel or the Dipper. The cost of capital is 8%. There are the following cash flows.

Required:

An evaluation of Fairground using:

(i) the payback period

(ii) the accounting rate of return (assume cash flows are equivalent to profits)

(iii) net present value

(iv) profitability index

(v) the internal rate of return.

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Rocket Carousel Dipper Initial outlay (18,000) (18,000) (18,000) Cash inflow Year 1 8,000 6,000 10,000 Year 2 8,000 4,000 6,000 Year 3 8,000 14,000 5,000