Transload Pty Ltd is a haulage company involved in cross border transport services. The company is looking into expanding to new markets in Africa and has tasked you with the analysis and evaluation of the new project’s profitability. The company’s required rate of return is 11%. You are given that the new expansion project requires an outlay of R6 000 000 to purchase haulage trucks and is expected to last for 7 years. Depreciation is charged evenly on cost basis and the tax rate is 28%. The cash flows of the business are as follows:

Year 1 R1150000

Year 2 R1270000

Year 3 R1300000

Year 4 R1210000

Year 5 R1320000

Year 6 R1325000

Year 7 R1325000

Year 8 R1300000

1.1 Calculate the Accounting rate of return for the project. (7)

1.2 Calculate the payback period. (5)

1.3 Calculate the net present value. (8)

1.4 Based on your answers in 1.2 and 1.3, should the company undertake this project or not. Provide reasons for your answer. (5)