Question 3. SuperMax Ltd is considering a major investment project in enhanced recycling equipment. The initial outlay of 90,000 for the investment will be followed by positive cash flows in subsequent years, as shown below. Years Cash flows () Year 0 -90,000 End of first year +5,000 End of second End of third year year +35,000 +80,000 After the end of the third year this business activity will cease, and no more cash flow will be produced. The initial 90,000 investment in assets is to be depreciated over the three-year life of the project using the straight-line method. These assets will have no value at the end of third year. The management accountant judges that the cash inflows shown above are also an accurate estimation of the profit before depreciation for each of the years. The management accountant also believes that the appropriate discount rate to use for the firm's projects is the cost of capital, equal to 10% per annum. The company usually requires a payback period of less than 2 years and an accounting rate of return higher than 25%. The CEO of the company believes that SuperMax should maximize stakeholder value creation while minimizing investment risk. The following discount factors are also available: Discount factor (@10%) Required: End of first year 0.909 (a) Calculate the payback period. End of second year 0.826 End of third year 0.751 (b) Calculate the net present value at the firm's cost of capital. (c) Calculate the accounting rate of return using the average investment method. (d) Present your arguments to the finance director of SuperMax Ltd concerning acceptance (or not) of the project. Your arguments should use (i) the results from your calculations in (a) to (c), (ii) a consideration of the advantages and disadvantages of each method of investment appraisal, and (iii) a consideration of any qualitative factors concerning SuperMax Ltd that may affect the decision.