Taxco Plc$,$ an airline navigation supplier, is in the process of buying a start$-$of$-$the art navigation software. The initial investment in the new software is $130,000.$ The annual cash flows are expected to be:

Year $138,000$

Year $243,000$

Year $350,000$

Taxco Plc employs a cost of capital of $6\%.$ The rate of inflation is expected to be $3\%$ for the duration of the project.

Calculate the ARR of the project, taking inflation into account.

b$)$ Calculate the $($undiscounted$)$ Payback Period of the project, taking inflation into account.

c$)$ Calculate the NPV of the project using the money cost of capital as the discount rate, and state clearly whether the project should be undertaken by the company.

d$)$ Calculate the NPV of the project using the real rate of return as the discount rate $($round up to $2$ decimal places$),$ and state clearly whether the project should be undertaken by the company.

e$)$ Discuss the likely impact of your outcomes in parts c$)$ and d$)$ above on Taxco Plc$.$