investing in three projects: Omega, Alpha and Sigma with initial investments of $300,000, $250,000 and $320,000 respectively. Each project is expected to have a life of five (5) years and an ending book value of $200,000. The expected profits generated by the projects are as follows: Profits after tax and depreciation
investing in three projects: Omega, Alpha and Sigma with initial investments of $300,000, $250,000 and $320,000 respectively. Each project is expected to have a life of five (5) years and an ending book value of $200,000. The expected profits generated by the projects are as follows: Profits after tax and depreciation
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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Mary is considering investing in three projects: Omega, Alpha and Sigma with initial investments of $300,000, $250,000 and $320,000 respectively. Each project is expected to have a life of five (5) years and an ending book value of $200,000. The expected profits generated by the projects are as follows:
Profits after tax and depreciation
Project Omega |
Project Alpha |
Project Sigma |
$ |
$ |
$ |
90,000 |
30,000 |
40,000 |
90,000 |
60,000 |
80,000 |
65,000 |
120,000 |
160,000 |
55,000 |
33,000 |
44,000 |
90,000 |
57,000 |
76,000 |
390,000 |
300,000 |
400,000 |
- Please assist Mary in deciding which project to invest in by calculating:
- the average profits for each project.
- the average capital for each project.
- the accounting
rate of return (ARR) on initial capital for each project.
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