QUESTION THREE [20] Cato Ltd need to invest in machinery for projects M and N. However due to constraint financial resources the company may only be able to invest in one of them. You are given the following projected data: Project M (R) Project N (R) Initial cost 720 000 760 000 Net profit/ (Loss): Year 1 (20 000) 114 000 Year 2 82 000 114 000 Year 3 151 000 114 000 Year 4 190 000 114 000 Year 5 67 000 114 000 Additional information: 1. Project M machinery will be disposed of at the end of year 5 with a scrap value of R80 000. 2. Project N machinery will be disposed of at the end of year 5 with a nil scrap value. 3. Depreciation is calculated on a straight line basis. 4. The discount rate to be used by the company 12%. Required: 3.1 Calculate the accounting rate of return for project M and N. (5) 3.2 Determine the payback period for each project. (note: net profit + depreciation = cash flows) (6) 3.3 Calculate the net present value of each project. (6) 3.4 Using your answers from question 3.3 above, choose with reasons the most suitable project. Why? (3)