EDUC 448 Final: Individual Project- Include this example for Assessment.docx
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In order to improve its liquidity position Anchors Investors Ltdis considering investing in three projects; Project P, Project Qand Project R with initial investments of $2,00,000, $4,000,000 and$5,000,000 respectively. Each project is expected to have a life offive (5) years. The profits generated by the projects are asfollows:
After tax and depreciation profits
Year | Project P | Project Q | Project R |
1 | 500,000 | 1,200,000 | 1,600,000 |
2 | 500,000 | 1,000,000 | 1,100,000 |
3 | 500,000 | 1,250,000 | 1,300,000 |
4 | 500,000 | 1,200,000 | 1,400,000 |
5 | 500,000 | 900,000 | 1,200,000 |
Total | 2,500,000 | 5,550,000 | 6,600,000 |
Calculate the average profits for each project on initialcapital. (3 marks)
Calculate the average capital for each project. (3 marks)
Calculate the accounting rate of return (ARR) on initialcapital. (6 marks)
Calculate the accounting rate of return (ARR) on averagecapital. (6 marks)
Assuming that finance is available briefly outline three factorsthat will influence the investors decision. (4 marks)
State two (2) advantages associated with the use of the Paybackmethod of project appraisal. (3 marks).