Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Aluminium Alloys Plant Steel Plant (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 Plant Initial investment (RO) | Operating Profit before depreciation year 1 Operating Profit before depreciation year 2 |Operating Profit before depreciation year 3 Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 | Scrap value at the end of 5 years (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (ii) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV)

Sohar Metal Company is considering three proposals for long term investment. Due to limitation on capital, the company can accept only one out three projects. The following information is available relating to : Aluminium Alloys Plant Steel Plant (100,000) 60,000 50,000 40,000 30,000 25,000 10,000 Plant Initial investment (RO) | Operating Profit before depreciation year 1 Operating Profit before depreciation year 2 |Operating Profit before depreciation year 3 Operating Profit before depreciation year 4 Operating Profit before depreciation year 5 | Scrap value at the end of 5 years (100,000) 54,000 46,000 40,000 36,000 25,000 10,000 (100,000) 50,000 50,000 40,000 30,000 30,000 5,000 The company's standard payback period is 2 years and standard ARR is 12%. The cost of capital is 10%? You are required to evaluate the above three projects based on following evaluation techniques: (i) (ii) (ii) Accounting Rate of Return (ARR) Payback Period (PBP) Net Present Value (NPV)

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 1PB

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