Beval Ltd is interested in expanding its products and is interested in buying a new piece of machinery for 500,000. It has estimated that in the first year it should be able to manufacture 50,000 units at a selling price of 10 per unit; in the second year it should increase to 55,000 units at a selling price of 10.50 per unit; the third year 52,000 units at a selling price of 9 per unit; and in the final year it would be 40,000 units at a selling price of 8 per unit. In the first year the variable costs are estimated to be 5 per unit, inflating at 3% per annum after that. Fixed costs are 50,000 in year 1, increasing at 2% per annum. Corporation tax is at 19% payable in the year. The residual value of the machinery should be 100,000 at year 4 prices. Cost of capital is 9%.

1. a) Calculate the Net Present Value (NPV) of the investment to the nearest 1,000; its Internal Rate of Return (IRR); its Payback; and its Accounting Rate of Return (ARR) based on average investment. Should the company proceed with the investment on financial grounds?