Frynas & Co. are considering buying a mobile drilling rig to expand the range of services the company provides for the water, gas and oil industries. The rig would cost £620,000 and last for four years, at the end of which it would be sold for £20,000. The estimated profits for each of the four years are shown below. (The company uses the straight-line method of calculating depreciation. Its latest set of accounts showed its return on capital employed to be 11.1%.)
Year.................................................... Profit/(loss)
....................................................................... £
1.......................................................... (50,000)
2 ........................................................... 50,000
3 ......................................................... 150,000
4 ........................................................... 50,000

Tasks:
1. Calculate and comment on the accounting rate of return (using the initial investment).
2. Calculate the payback period.
3. Calculate the net present value if Frynas’s cost of capital is 10.0%.
4. Calculate the internal rate of return.
5. Comment on your findings.