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: a. the accounting rate of return (ARR) on average capital for each project. b. Based on your calculations, which Project would you recommend Mary to invest in?
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: a. the accounting
rate of return (ARR) on average capital for each project.
b. Based on your calculations, which Project would you recommend Mary to invest in?
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