A dairy farm is deciding whether to buy a new machine to produce milk lollies. It is expected that the demand for milk lollies will last five years and will be as follows:

Number of milk lollies produced and sold:

Year 1	40 000
Year 2	40 000
Year 3	30 000
Year 4	20 000
Year 5	20 000

The milk lollies can be sold for R3.00 each.

Capital R150 000

Operating costs: Per unit

Direct labour 0.40

Materials 0.60

Variable overheads 0.25

Fixed overheads:

Depreciation 1.00

Allocated costs 0.40

2.65

Unit operating costs, fixed overheads costs and selling price are expected to remain constant throughout the five-year period. The dairy expects its cost of capital to be 20% throughout the period.

Required:

1. Calculate the accounting rate of return based on initial investment for the new machine. (5)

2. Calculate the payback period of the new machine. (5)

3. Calculate the net present value of the machine (5)