Crescent Company, which operates a school canteen, is planning to buy a doughnut-making machine for P300,000. The machine is expected to produce 35,000 units of doughnuts per year which can be sold for P10 each. Variable cost to produce and sell the doughnut is P4 per unit. Incremental fixed costs, exclusive of depreciation, is estimated at P60,000 per year. The doughnut-making machine will be depreciated on a straight-line basis for 5 years to a zero salvage value. For capital investment projects, the companys minimum desired rate of return is 11%. The company pays income tax at 25% of income before tax.

Required: Evaluate the project using the following techniques: (Strictly use three decimal places for all your present value factors)

a. Average accounting rate of return

b. Net present Value

c. Profitability Index