QUESTION FOUR

$[25]$

AutoPatz $($Ltd$)$ is a manufacturer of automotive engine parts. The company is considering upgrading its machinery. The financial details of the investment proposal are as follows:

$\backslash$table$[[,$R$],[$Cost of equipment,$2000000],[$Import duty,$450000],[$Installation cost$,125000],[$Net cash flows for year $1-9,800000($per annum$)],[$Year $10$ cash flow,$375000],[$Residual$/$scrap value $($end of year $10),525000]]$

Additional information:

The company uses straight$-$line depreciation. The cost of capital for projects of similar risk is $20\%.$

Ignore taxation.

$4\mathrm{.}1.$ Calculate the investment's Accounting Rate of Return $($ARR$).$

$4\mathrm{.}2.$ Briefly explain if the ARR is acceptable or not based on a target rate of return of $35\%.$

$(1)$

$4\mathrm{.}3.$ Assume a payback period of $4$ years for the company. Determine the payback period and state if the investment is acceptable or not.

$(6)$

$4\mathrm{.}4.$ Calculate and comment on the viability of the proposed investment based on the net present value $($NPV$)$ method.