Maendeleo Company wants to invest in a milk processing plant. The cost of the investment is estimated to be Kshs. 8,000,000. The company has life expectancy of five years and no salvage value. The tax credit is allowed. The firm uses straight line depreciation. The estimated cash flows before tax (CFBT) from the proposed investment proposal are as follows:

Compute the following:

a) Payback period. (2 marks)

b) Average rate of return. (3 marks)

c) Internal rate of return. (4 marks)

d) Net present value at 10% discount rate. (3 marks)

e) Profitability index at 10% discount rate. (3 marks)

Year CFBT Kshs. 1 10,000,000 2 12,000,000 3 14,000,000 4 16,000,000 5 24,000,000