Q.3 Calm Ltd has the following data relating to two investment projects, only one of which may be selected: Project Ace ($) 500,000 Project Bee ($) 500,000 Initial capital expenditure Cash-flows year 100,000 100,000 140,000 260,000 100,000 The cost of capital is 10 per cent, and depreciation is calculated using straight line method. 250,000 200,000 150,000 100,000 100,000 3 4 Estimated resale value at the end of year 4 a. Calculate for each of the project: i. Average annual accounting rate of return on average capital invested ii. Net Present Value 111. Internal Rate of Return b. Discuss the relative merits of the methods of evaluation mentioned above in (a).
Q.3 Calm Ltd has the following data relating to two investment projects, only one of which may be selected: Project Ace ($) 500,000 Project Bee ($) 500,000 Initial capital expenditure Cash-flows year 100,000 100,000 140,000 260,000 100,000 The cost of capital is 10 per cent, and depreciation is calculated using straight line method. 250,000 200,000 150,000 100,000 100,000 3 4 Estimated resale value at the end of year 4 a. Calculate for each of the project: i. Average annual accounting rate of return on average capital invested ii. Net Present Value 111. Internal Rate of Return b. Discuss the relative merits of the methods of evaluation mentioned above in (a).
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 11P
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