12 The directors of Dundee Ltd, a textile manufacturer, are deciding whether to purchase some new equipment which will speed up the production process. The cash flows that are expected to be generated from the new equipment are as follows: Year 0-Cost (immediate outlay) Net cash flows generated: Year 1 Year 2 Year 3 Year 4 Scrap value (year 4)) 100,000 Benchmarks Payback period-2.5 years Accounting rate of retum-initial method 5% Accounting rate of retum-average method 12% 16,000 40,000 50,000 20,000 6,000 REQUIRED: a) (1) Calculate the payback period. (1) Should Dundee Ltd purchase the equipment according to this method? (3 marks) b) (1) Calculate the Accounting Rate of Retum (using the initial method) (ii) Should Dundee Ltd purchase the equipment according to this method? (4 marks) c) (1) Calculate the Accounting Rate of Retum (using the average method) (ii) Should Dundee Ltd purchase the equipment according to this method? (4 marks) d) (i) Calculate the net present value using a discount rate of 10%. (i) Should Dundee Ltd purchase the equipment according to this method? (4 marks) e) Calculate the internal rate of retur (3 marks) 1) Explain, with reasons, whether you would you recommend the company to purchase the equipment overall? (3 marks) Page 9 of 12 g) Identify TWO advantages and TWO disadvantages of the accounting rate of return approach to making a decision