Delta Plc is considering investing in bespoke software solutions, which require an initial investment of 130,000. The annual cash inflows during years 1-3 are expected to be 38,000 for year 1; 43,000 for year 2 and 50,000 for year 3. The companys money cost of capital is 6% and inflation is expected to be 3% during the life of the project.

Required:

a) Calculate the ARR of the project, taking inflation into account.

b) Calculate the (undiscounted) Payback Period of the project, taking inflation into account.

c) Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken by the company.