Gumbi Traders are looking to invest in new machinery in view of their expanding operations.

The following information has been extracted from the reports relating to the project:

Investment R1 000 000

Average annual profit R342 500

Life span 4 years

Minimum required rate of return 12%

Net Cash flows:

1 st year R200 000

2 nd year R350 000

3 rd year R400 000

4 th year R420 000

Required:

3.1 Calculate the accounting rate of return (Express the answer to two decimal places). (4)

3.2 Calculate the payback period (answer in years, months and days). (4)

3.3 Calculate the net present value. (Round off amounts to the nearest Rand). (6)

3.4 Would the project be acceptable at a cost of capital of 10%? Motivate your answer with an appropriate calculation.