(a)[7]
Look at Appendix 2. Calculate:
- payback period measure [2]
- Accounting Rate of Return (ARR) for the 5 year life of the investment [3]
- the net present value for the investment's 5 year life. [2]
(b)[2]
Use Appendices 2 and 3. Calculate the discounted payback period if the net cash flows of $0.4m carry on after year 5.
(c)[12]
Use your answers to 4(a), 4(b) and other relevant information. Recommend whether PV should invest in new machinery. Justify your answer.