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ZYC LTD has a cost of capital of 15% and is considering a capital investment...

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Finance

ZYC LTD has a cost of capital of 15% and is considering a capital investment project of 100,000, with no scrap value, where the estimated cash flows, depreciation and profits are as follows: Cash flows Depreciation Profits (after depreciation) Year 0 -100,000 - - Year 1 60,000 25,000 35,000 Year 2 80,000 25,000 55,000 Year 3 40,000 25,000 15,000 Year 4 30,000 25,000 5,000 Required a) Calculate the accounting rate of return (ARR) based on initial investment ? b) Calculate the payback period (PBP) for the capital investment project ? c) Calculate the net present value (NPV) of the capital investment project ? d) Advise ZYC as to whether they should invest in the project ? justify your advice by making specific reference to the ARR, PBP and NPV calculated

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