Use the information provided to answer the questionsCalculate the Accounting Rate of Return (on average investment) of Project B (expressed to twodecimal places).Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand). Use your answers from previous question to recommend the project that should be chosen. Motivateyour choice. INFORMATIONZeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest inone of them. You are given the following projected data:Initial costScrap valueDepreciation per yearNet profitYear 1Year 2Year 3Year 4Year 5Net cash flowsYear 1Year 2Year 3Year 4Year 5Additional informationThe discount rate used by the company is 12%.Project AR300 000R40 000R52 000R20 000R30 000R50 000R60 000R10 000Project BR300 0000R60 000R90 000R90 000R90 000R90 000R90 000

The Accounting Rate of Return (ARR) is a financial metric that calculates the average annual profit…

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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6PB: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Calculate the Accounting Rate of Return (on average investment) of Project B (expressed to two
decimal places).
Calculate the Net Present Value of each project (with amounts rounded off to the nearest Rand).
Use your answers from previous question to recommend the project that should be chosen. Motivate
your choice.

INFORMATION
Zeda Enterprises has the option to invest in machinery in projects A and B but finance is only available to invest in
one of them. You are given the following projected data:
Initial cost
Scrap value
Depreciation per year
Net profit
Year 1
Year 2
Year 3
Year 4
Year 5
Net cash flows
Year 1
Year 2
Year 3
Year 4
Year 5
Additional information
The discount rate used by the company is 12%.
Project A
R300 000
R40 000
R52 000
R20 000
R30 000
R50 000
R60 000
R10 000
Project B
R300 000
0
R60 000
R90 000
R90 000
R90 000
R90 000
R90 000

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