Question 1 Grey Ltd has provided the following figures for two investment projects, only one of which may be chosen. Project X Project Y Initial outlay 200,000 180,000 Profit for year 1 65,000 35,000 65,000 35,000 75,000 65,000 4 35,000 85,000 Estimated resale value at end of year 4 60,000 40,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%. Required a) Calculate for each project Payback Average Return on Capital Employed Net present value (NPV) i. ii. iii. b) Critically discuss the merits and limitations of payback and NPV (Your answer is to be presented in an essay format NOT Bullet Points)
Question 1 Grey Ltd has provided the following figures for two investment projects, only one of which may be chosen. Project X Project Y Initial outlay 200,000 180,000 Profit for year 1 65,000 35,000 65,000 35,000 75,000 65,000 4 35,000 85,000 Estimated resale value at end of year 4 60,000 40,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%. Required a) Calculate for each project Payback Average Return on Capital Employed Net present value (NPV) i. ii. iii. b) Critically discuss the merits and limitations of payback and NPV (Your answer is to be presented in an essay format NOT Bullet Points)
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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