Paper Ltd is in the business of manufacturing corporate diaries. It is considering investing in new machinery which will reduce the production time of manufacturing their diaries for sale.

The company uses the accounting rate of return in assessing its capital budgeting projects.

Projects are accepted if they produce a return greater than $15\%.$

The cost of the new machinery is R$350,000.$

Details of cash flows associated with the new machinery are as follows:

In addition to the investment above, the company is embarking on a new sales strategy $($relevant to the investment$)$ which will see an increase in credit terms to boost sales.

Research indicates a $5\%$ increase in the provision for bad debts. Expected credit sales in the $5$ years are as follows:

Round your answer to $2$ decimal points.

Year Cash Flows

$1170000$

$2100000$

$3185000$

$472000$

$550000$

Expected useful life: $5$ years $($straight line depreciation$)$

Salvage value: $50000$

Cost of capital: $10\%$

Tax rate: $28\%$

Year Credit Sales

$1220000$

$2250000$

$3180000$

$4170000$

$5150000$

Required

Advise Paper Ltd whether this investment should be accepted based on the accounting rate of return. Please provide a reason to support your recommendation