Chakuma Pty Ltd is a relatively new company based in the Limpopo Province in South Africa. It is a farming business. It supplies mangoes to overseas customers, especially in the USA. Thatho is an ambitious young executive who has recently been appointed by Chakuma Corporation. He believes in rapidly growing Chakuma through mixed farming. He would like to diversify Chakuma$$s business to include the rearing of animals. Thatho recently raised $$350000$ to invest in one of three projects described below. Project A involves beef production. Thatho and his team will be required to secure Ankole cows from Uganda, which is in north$-$central Africa. This breed of cows is famed for their rich creamy milk and tender meat. Project B involves poultry farming. Thatho and this team will be required to secure a special breed of chickens from Zimbabwe known as road runners. This breed of chickens is famed for being very fast on their feet particularly when they are evading predators. They also produce relatively hard meat compared to imported poultry meat from overseas. This meat from road runners has become very popular among South Africans in recent years.

Project C involves Sheep farming. Thatho and his team will be required to secure a special breed of sheep from Namibia. This breed of sheep has spent centuries adapting to the harsh climate of the Kalahari Desert. The directors of Chakuma believe that the sheep will thrive in the Karoo where the climate is more friendly than the Kalahari.

The CFO has evaluated the three projects and came up with projections given below as follows:

Net cashflows $($R$000)$

Years

Project $012345678$

A $-350100110104112138160180-$

B $-35040100210260160---$

C $-35020015024040----$

The CFO would like to use the payback method and the accounting rate of return $($ARR$)$ to appraise the projects. He is not very familiar with the use of the NPV appraisal method. He believes the NPV method has major drawbacks and is not suitable in this case. He personally favours projects that show large accounting profits and payback invested funds early in their lives. Chakuma$$s cost of capital is $20$ per cent.

Required:

a$)$ What is the payback period for each project? $(5$ marks$)$

b$)$ What is the accounting rate of return for each project? $(8$ marks$)$

c$)$ Explain the meaning of NPV and outline the major advantages and disadvantages of this method. $(5$ marks$)$

d$)$ What are the limitations of using the CAPM for capital budgeting decisions? $(5$ marks$)$