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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The following data is supplied relating to two investment projects, only one of which may be selected:
| Â |
Project A |
Project B |
|
Initial capital expenditure |
50000 |
50000 |
|
Profit (loss) year 1 |
25000 |
10000 |
|
2 |
20000 |
10000 |
|
3 |
15000 |
14000 |
|
4 |
10000 |
26000 |
|
Estimated resale value end of year 4 |
10000 |
10000 |
Notes:
(1) Profit is calculated after deducting straight-line depreciation
(2) The cost of capital is 10%.
Required:
(a) Calculate for each project:
(i) average annual rate of return on average capital invested;
(ii) payback period;
(iii) net present value.
(b) Briefly discuss the relative merits of the three methods of evaluation mentioned in (a) above.
(c) Explain which project you would recommend for acceptance.
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