Terry’s Tiles Ltd is reviewing a capital investment proposal. The initial cost of the project and the net cash flows for each year are presented in the schedule below. It is estimated that there would b e no salvage value at the end of the investment’s life.
Terry’s uses a required rate of return of 10 percent to evaluate new capital investment proposals.
1. Calculate the project’s payback period.
2. Calculate the accounting rate of return on the investment proposal. Base your calculation on the initial cost of the investment.
3. Calculate the proposal’s net present value.