Marsh Limited has investigated the possibility of investing in a new machine. The following data have been extracted from the report relating to the project:
Cost of machine on 1 January Year 6: £500,000.
Life: four years to 31 December Year 9.
Estimated scrap value: Nil.
Depreciation method: Straight-line.

The company€™s required rate of return is 15%.

Required:
Calculate the return the machine would make using the following investment appraisal methods:
(a) Payback
(b) Accounting rate of return
(c) Net present value
(d) Internal rate ofreturn.

Transcribed Image Text:

Accounting profit after tax £000 100 250 250 200 Year Net cash flows £000 50 200 225 225 100 (excluding the initial cost) 8 10