Q2:Terry's Tiles is reviewing a capital investment proposal. The initial cost of the project and the net cash flows for each year are presented in the schedule below. It is estimated that there would be no salvage value at the end of the investment's life.

Year

Initial cost and carrying amount

Annual net cash flow

Annual net profit

0

$105 000

1

70 000

$ 50 000

$15 000

2

42 000

45 000

17 000

3

21000

40 000

19 000

4

7 000

35 000

21 000

5

0

30 000

23 000

Terry's uses a required rate of return of 16% to evaluate new capital investment proposals.

Required:

1)Calculate the project's payback period.3 marks

2)Calculate the accounting rate of return on the investment proposal. Base your calculation on the initial cost of the investment.3 marks

3)Calculate the proposal's net present value4 marks