Advanced Technologies Limited is considering the acquisition of a machine to manufacture electronic components.

The machine will cost $140,000 and will produce a positive cash flow of $50,000 in the first year. The cash flows will increase by 10 per cent each year thereafter for another four years. At that stage the project will cease and the equipment will have a scrap value of $20,000.

The company expects a rate of return of 15% on this type of project.

Required

1. Calculate the net present value (NPV) of the proposed investment in product.
2. Calculate the internal rate of return (IRR) of the proposed investment in product.
3. Comment on financial acceptability of the investment.