Pulin Ltd purchased a new tractor at a cost of R 80 000. Annual operating cash inflows are expected to be R 30 000 each year for four years. At the end of the tractors useful life, the salvage value of the tractor is expected to be R 5 000.

Required:

3.1. The company requires a payback period of not more than 5 years. Indicate, based on this criterion, whether the project should be accepted. (8)

3.2. Calculate the Net Present Value if the Cost of Capital is 12% (ignore taxes). Indicate with reasons whether based on this calculation that this project should be accepted or not. (12)

4.3. Outline the advantages and disadvantages of the Payback Period method.