Tricol plc is now considering the development of its own distribution arm.  This operation would involve the purchase of several new motor vehicles, the acquisition of some adjacent land and apurpose-built loading unit.  Thefollowing are the estimated costs of the planned investment:

Description        Cost

MotorVehicles    £100,000

Land            £600,000

Loading Unit      £300,000

Detailed market research has indicated that the expected revenue from the investment over the next five years is as follows:

Year    1                 2                  3                4               5

 £160,000   £160,000   £320,000   £320,000  £320,000

The company has been advised that the market rate of return on investment projectsis currently 10%.  It is also keen to recoup the cost of the investment within five years. 

You are required to:

Actas advisor to the company in producing a report for management in which you evaluate the financial viability of the above Investment proposal.

Yourreport should include:

I.The evaluation of the project using payback period and accounting rate of return methods.

II.Produce a discounted cash flow (net present value and internal rate of return)which includes all relevant data allocated to the correct periods.

III.Assess the viability of the project making reference to a minimum of three conclusions and recommendations — these must be supported with evidence from your analysis of the investment appraisal techniques

You should also consider any non financial factors when making your recommendations.

Note:For the purpose of this task you should ignore the impact of taxation and inflation on the above figures.