Lovewell Limited a food manufacturer is considering purchasing a new machine for 275,000. The

company is expecting an annual cash inflow of 85,000 from the sale of products and an annual cash

outflow of 12,500 for each of the six years of the machine's useful life. The annual cash outflows do

not include annual depreciation charges for the machine. The machine is depreciated using the

straight -line method. The machine is expected to last for six years, with a residual value estimated to

be at the rate of 15% of the original cost of the machine. The cost of capital for Lovewell Limited is

12%.

You are required to:

1. Calculate using the following investment appraisal techniques, and provide brief recommendations

as to the economic feasibility of acquiring the machine:

a. The Payback Period.

b. The Accounting Rate of Return.

c. The Net Present Value.

d. The Internal Rate of Return (to two decimal places)