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| Teaching Since: | May 2017 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project ABC Initial Cost £200 000 £230 000 £180 000 Expected Life 5 years 5 years 4 years Scrap value expected £10 000 £15 000 £8000 Expected Cash Inflows (£) (£) (£) End Year 1 80 000 100 000 55 000 End Year 2 70 000 70 000 65 000 End Year 3 65 000 50 000 95 000 End Year 4 60 000 50 000 100 000 End Year 5 55 000 50 000 The company estimates its cost of capital is 18%. Calculate (a) The pay back period for each project. (4 marks) (b) The Accounting Rate of Return for each project. (4 marks) (c) The Net present value of each project. (8 marks) (d) Which project should be accepted – give reasons. (5 marks) (e) Explain the factors management would need to consider: in addition to the financial factors before making a final decision on a project. (4 marks) (Total 25 marks) AAT Stage 3 Cost Accounting and Budgeting Question IM 13.1 Advanced Question IM 13.2 Payback, accounting rate of return and NPV calculations plus a discussion of qualitative factors
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