Salam Ltd Company currently sends out its vehicles for painting to specialist firms. During the last financial year, the number of vehicles painted was 796 at a cost of £224,472. You are considering the possibility of this work being undertaken by the company in a workshop set up for this purpose. The following information relates to the project:

The paint shop can be set up in an existing building that has not been used for some years and is estimated to be worth £250,000.

Equipment costing £480,000 needs to be purchased with a life expectancy of 6 years. The residual value is estimated as £96,000 at the end of year 6.

The annual costs in today’s money of the operation are estimated to be:

Rates and maintenance	£17,920
Management	£21,400
Labour	£46,970
Head office costs	£25,000

Based on the number of vehicles painted last year, the cost of consumable materials and other variable costs is estimated at £30,248 based on the number of vehicles painted last year.

Tax will be recoverable in year 2 and payable thereafter as shown below:

Year 2	£25,220	Recoverable
Year 3	£10,780	Payable
Year 4	£16,180	Payable
Year 5	£20,230	Payable
Year 6	£23,268	Payable
Year 7	£46,049	Payable

The head office costs are a re-allocation of existing overheads.

Required:

Calculate the following performance indicators relating to the proposal:

1- NPV based on a cost of capital of 12%.

2- IRR.

3- Payback period in both nominal and present-value terms?

Do these indicators suggest that the project should be undertaken?