The below information relates to a prospective project that is under evaluation of Draw plc. Initial investment outlay MVR 1 000 000 Net profit Year 1 MVR 450 000 Year 2 MVR 400 000 Year 3 MVR 350 000 Year 4 MVR 300 000 It was estimated that the project will have a residual value of MVR 200 000 after useful life of 4 years. a) Calculate Accounting Rate of Return (ARR), clearly showing the workings. b) State one main disadvantage of using ARR as an investment appraisal techinīque.

The below information relates to a prospective project that is under evaluation of Draw plc. Initial investment outlay MVR 1 000 000 Net profit Year 1 MVR 450 000 Year 2 MVR 400 000 Year 3 MVR 350 000 Year 4 MVR 300 000 It was estimated that the project will have a residual value of MVR 200 000 after useful life of 4 years. a) Calculate Accounting Rate of Return (ARR), clearly showing the workings. b) State one main disadvantage of using ARR as an investment appraisal techinīque.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 20E: Identify error in capital investment analysis calculations Artscape Inc. is considering the purchase...

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The construction market is suffering from a short-term economic recession, and one of the investors has found investment opportunities for two projects whose initial indicators are explained as follows: project A:r=6% project B: r-6% Year cash flow (CF) Year cash flow (CF) 0 -2100 0 -3900 1 810 1 980 2 870 2 1980 3 1205 3 1985 4 1314 4 1990 A) Find values of NPV for the both project under value of r-6% during this 1* round? B) The construction market supports assumption which leads to an increase constantly in the values of r by 6% from 1st round to be the 2nd & 3rd rounds within a new r values so find again NPVs for both mentioned projects. C) Give simple economic assessment for both above project.
Identify error in capital investment analysis calculations Artscape Inc. is considering the purchase of automated machinery that is expected to have a useful life of five years and no residual value. The average rate of return on the average investment has been computed to be 20%, and the cash payback period was computed to be 5.5 years. Do you see any reason to question the validity of the data presented? Explain.
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