QUESTION TWO Zoey Limited is considering upgrading its plant. The financial details of the investment proposal are as follows: Cost of plant Import duty Installation cost Net cash flows Year 1-10 Residual/scrap value R3 600 000 R 900 000 R 300 000 R1 400 000 per annum (excluding residual value) R1 200 000 The company uses straight-line depreciation. The cost of capital for projects of similar risk is 18%. Ignore taxation. 2.1 22 2.2 2.3 2.4 2.5 Calculate the investment's Accounting Rate of Return (ARR). Briefly explain if the ARR is acceptable or not based on a target rate of return of 40%. Assume a payback period of 4 years. Determine the payback period and state if the investment is acceptable or not. Calculate and comment on the viability of the proposed investment based on the net present value (NPV) method. Discuss whether the advantages of using the NPV method outweigh the disadvantages Note: All Answers must be Typed out and workings must be shown