Cables Oman LLC has a cost of capital of 10% and is considering an investment opportunity. The following details are pertinent to the investment.

Purchase of fixed assets: OMR 900,000 Disposal value of fixed assets at end of project: OMR100, 000. Cash flows are as follows:

Year 1, OMR 200,000 Year 2, OMR 300,000 Year 3, OMR 400,000 Year 4, OMR 300,000 Year 5, OMR 200,000

Requirement:

(i) Calculate the projects payback, net present value and internal rate of return, advising the company on the suitability of the project. [12 Marks]

(ii) Investment Manager is considering a new investment opportunity and has heard of the term accounting rate of return (ARR). Advise him what this term means in decision making and identify an advantage and disadvantage of using ARR in decision making. [3 Marks]