A herb supply company is considering a loan to make an investment in a new growing operation. The initial investment and loan required are $35,000 and the investment is expected to earn end of year after tax net cash inflows of $20,000 for each of the next three years before it needs replacement and must be sold for an estimated $12,000 (after tax). a) Calculate the NPV of this investment if the interest rate on the loan is 3.8% pa.

b) Calculate the accounting rate of return on this investment.

c) If cashflows were received evenly through the year, what would be the exact payback period for this investment?

d) Advise management of your recommendation regarding this investment based on your calculations.