Question 16
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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 B C . Initial cost R100 000 R115 000 R90 000 Expected life 5 years 5 years 4 years Scrap value R5 000 R7 500 R4 000 End year 1 40 000 50 000 27 500 2 35 000 35 000 32 500 3 32 500 25 000 47 500 4 30 000 25 000 50 000 5 27 500 25 000
The company estimates its cost of capital is 18%. Required: (a) Calculate the ARR, on average investment for project C. |
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