To keep accounting records more efficiently, Alain would need a computer system which is estimated to cost 30,000. The computer system is expected to have a scrap value of 3,000 at the end of the three years and would require an investment in working capital of 5,000. The following cash flow as a result of the purchase of the computer system has been estimated:

The following is the present value of 1:

John has heard that the Internal Rate of Return is the best investment appraisal technique. Use the details for the above computer system to explain to John the difference between the Net Present Value and the Internal Rate of Return. Mention the most significant advantage of using a net present value investment appraisal technique.

Net cash inflows: Year 1 Year 2 Year 3 Year 3 (scrap value) Computer System 11,500 11,500 9,500 3,000 7% 0.935 PRESENT VALUE OF 1 Year 1 Year 2 Year 3 9% 0.917 0.842 0.772 0.873 0.816