1. A business is considering a project which would last 5 years and have an initial investment of $40,000 in machinery. At the end of the project the machinery would have a scrap value of $4,000. The project would provide annual net cash inflows as follows:

Year Net cash flow ($000)

1 16

2 20

3 12

4 12

5 10

The company has a target payback period of 2.5 years and new projects must also provide and average accounting rate of return of at least 15% p.a.

Advise the company on whether this project meets the company's targets.