NPV, IRR, ARR, payback

I am studying corporate finance. i need help for following question below.

Key Financial Data

Laid Back Sofas Ltd is intending to invest in machinery to meet the predicted levels of demand. Following various meetings with the senior management team and relevant members of staff the following financial data is available.

The cost of the machinery will be £8.2 million and is expected to last for four years. The residual value of the machinery at the end of the investment period will be £1.4 million (in money terms).

Alex Lloyd has liaised with his sales manager and they have predicted the following sales volumes for the new contracts: –

Year 1 2 3 4
Volumes (units) 7,200 9,100 6,300 4,200

After undertaking significant market research the average selling price for the new business via the new high street stores will be £1,600 per unit and following production trials the average variable cost of production has been budgeted at £900 per unit. Annual incremental fixed production overheads are expected to be £350,000 per annum in real terms as a result of the decision to invest in the new machinery. Selling price, variable costs and fixed costs are in current terms.

Selling price, variable costs and fixed costs are expected to increase due to inflation as follows: –

Increase

Average selling price per unit 2.00% per annum Average variable cost of production per unit 3.00% per annum Fixed production overheads 4.00% per annum

The Business Analyst team have provided the following information in terms of a cost of capital: –

Real cost of capital 6.00% General Inflation 2.80%

Following discussions with her marketing director (Jessy Davies) Alex has agreed the following increased expenditure for the marketing budget (in money terms): –

Year 1 2 3 4

Expenditure £890,000 £1,200,000 £750,000 £680,000

Increased distribution costs associated with the project are as follows:

Year 1 2 3 4
% of sales revenue 5% 7% 6% 4%

Investment in working capital associated with the project is (in money terms): – Year 1 2 3 4
Expenditure £380,000 £420,000 £360,000 £220,000

Research and Development costs already incurred on the project have amounted to
£280,000.

Laid Back Sofas Ltd pays corporation tax at the rate of 30% and there is a one year delay on paying tax. Capital allowances can be claimed at 25% on a reducing balance basis.

KPIs – Key Performance Indicators

As part of the internal financial decision making process the following KPIs have been agreed by the senior management team:

Payback Period Less than 3 years

Target ARR (Accounting Rate of Return) 20%

NPV Must meet general decision rules

IRR Must meet general decision rules

calculate NPV,ARR,IRR, payback