Fast Motors have just made an investment of R390 000 in a state of the art chassis straightening device, this for taxis that have been damaged in motor accidents. Details of the machine are below: Expected useful life 5 years (straight line depreciation) Salvage value 10 000 (sold as scrap metal) Cost of capital 10 % The tax rate is 30% Expected cash flows are as follows:

Year 1 80 000 2 120 000 3 100 000 4 110 000 5 90 000 Required 3.1. Calculate the Payback Period. (3) 3.2. Determine the Average Rate of Return (ARR)? (3) 3.3. Fast Motors requires a payback period of no more than 4 years and a return of at least 25%. On the basis of these criteria, should this project be accepted? Explain your answer. (2) 3.4. Calculate the NPV for the project. Should the project be accepted on this basis? Explain your answer. (5) 3.5. To make your ultimate decision, which method will you choose? Why?