Podcaster University Press is evaluating two book proposals, one in accounting and one in economics. The directors are keen on both books but have funding for only one and they cannot decide which book to publish. Details of the two books are as follows:

Accounting book

The accounting book requires an investment of £450,000 to be made immediately. The book will produce net cash inflows of £160,000 in years 1 to 3 and £100,000 in years 4 and 5. The non-current assets involved in the book’s production are expected to have a resale value of £50,000 after five years. It is the directors’ intention to sell the non-current assets from this project at the end of year 5 to realize the £50,000 cash inflow.

Economics book

The economics book requires an immediate investment of £600,000. The book will produce
net cash inflows of £240,000 in year 1, £200,000 in year 2, £160,000 in year 3 and
£105,000 in years 4 and 5. The non-current assets bought to print this book are expected
to have a resale value of £100,000 at the end of the project. It is the directors’ intention to sell the non-current assets from this project at the end of year 5 to realize the £100,000 cash inflow.

Podcaster University Press has a cost of capital of 10%. 

You should use a discount rate of 20% when calculating the IRR of the two book projects.

Required

Evaluate the two book projects using the payback, ARR, NPV and IRR methods of investment appraisal. Which project will you recommend and why will you recommend this project?