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 depreciationProject Omega Project Alpha Project Sigma $$$90,00030,00040,00090,00060,00080,00065,000120,000160,00055,00033,00044,00090,00057,00076,000390,000300,000400,000 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.

1. Average profit for each project: Omega - $390,000/5 years = $78,000 Alpha - $300,000/5 years =…

Answered: investing in three projects: Omega,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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:
1. the average profits for each project.
2. the average capital for each project.

the accounting rate of return (ARR) on initial capital for each project.

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