The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project A Project B Project C Initial Cost 240,000.00 260,000.00 200,000.00 Expected life 5 5 4 Scrap value expected 10,000.00 15,000.00 10,000.00 Expected Cash Inflows: End Year 1 85,000.00 95,000.00 45,000.00 End Year 2 70,000.00 70,000.00 65,000.00 End Year 3 65,000.00 55,000.00 95,000.00 End Year 4 60,000.00 50,000.00 100,000.00 End Year 5 50,000.00 50,000.00 The company estimates cost of capital is 18%. The table below shows the present value of $1 at 14%, 18% and 22%. Periods 14% 18% 22% 1 0.877 0.847 0.820 2 0.769 0.718 0.672 3 0.675 0.609 0.551 4 0.592 0.516 0.451 5 0.519 0.437 0.370 6 0.456 0.370 0.303 Required: Calculate:(b) The accounting rate of return for each project

The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project A Project B Project C Initial Cost 240,000.00 260,000.00 200,000.00 Expected life 5 5 4 Scrap value expected 10,000.00 15,000.00 10,000.00 Expected Cash Inflows: End Year 1 85,000.00 95,000.00 45,000.00 End Year 2 70,000.00 70,000.00 65,000.00 End Year 3 65,000.00 55,000.00 95,000.00 End Year 4 60,000.00 50,000.00 100,000.00 End Year 5 50,000.00 50,000.00 The company estimates cost of capital is 18%. The table below shows the present value of $1 at 14%, 18% and 22%. Periods 14% 18% 22% 1 0.877 0.847 0.820 2 0.769 0.718 0.672 3 0.675 0.609 0.551 4 0.592 0.516 0.451 5 0.519 0.437 0.370 6 0.456 0.370 0.303 Required: Calculate:(b) The accounting rate of return for each project

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 4PB

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The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted. Project A Project B Project C Initial Cost $230,000 $250,000 $190,000 Expected life 5years 5 years 4 years Scrap value expected $10,000 $15,000 $10,000 Expected Cash Inflows: $ $ $ End Year 1 85,000 95,000 45,000 End Year 2 70,000 70,000 65,000 End Year 3 65,000 55,000 95,000 End Year 4 60,000 50,000 100,000 End Year 5 50,000 50,000 The company estimates cost of capital is 18%. The table below shows the present value of $1 at 14%, 18% and 22%. Periods 14% 18% 22% 1 0.877 0.847 0.820 2 0.769 0.718 0.672 3 0.675 0.609 0.551 4 0.592 0.516 0.451 5 0.519 0.437 0.370 6 0.456 0.370 0.303 Required: Calculate: The payback period for each project The accounting rate of…
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	Project A	Project B	Project C
Initial Cost	240,000.00	260,000.00	200,000.00
Expected life	5	5	4
Scrap value expected	10,000.00	15,000.00	10,000.00
Expected Cash Inflows:
End Year 1	85,000.00	95,000.00	45,000.00
End Year 2	70,000.00	70,000.00	65,000.00
End Year 3	65,000.00	55,000.00	95,000.00
End Year 4	60,000.00	50,000.00	100,000.00
End Year 5	50,000.00	50,000.00

Periods	14%	18%	22%
1	0.877	0.847	0.820
2	0.769	0.718	0.672
3	0.675	0.609	0.551
4	0.592	0.516	0.451
5	0.519	0.437	0.370
6	0.456	0.370	0.303