(a)[2]
Explain what is meant by the term cost of capital.
(b(i))[2]
Calculate for the proposed investment: payback period (in years and months).
(b(ii))[3]
Calculate for the proposed investment: accounting rate of return (to two decimal places).
(b(iii))[3]
Calculate for the proposed investment: net present value (NPV).
(b(iv))[4]
Calculate for the proposed investment: internal rate of return (IRR) (to two decimal places).
(c)[3]
Advise the directors whether the company ought to buy the machine. Support your answer with reasons.
(d)[2]
Explain how the directors’ decision to buy the machine would be affected if the cost of capital is $16\%$.
(e)[6]
Calculate the net cash inflows for each of the four years so that the NPV of the proposed investment is zero.