Question

The management team of U. Dunnit Limited have four projects for consideration. In the past, they have evaluated projects

against simple payback. The following information is available:

   Project A Project B Project C Project D £

	A	B	C	D
Capital Outlay	65,000	140,000	30,000	160,000
Net Cash Inflow
Year 1	30,000	45,000	20,000	35,000
Year 2	20,000	45,000	10,000	35,000
Year 3	15,000	45,000	10,000	55,000
Year 4	10,000	45,000		55,000
Year 5	10,0000	45,000		65,000

REQUIRED

Evaluate the projects using each of the following methods:

(a) Payback.

(b) Accounting rate of return using full capital outlay (investment).

(c) Net present value and profitability index. Assuming a cost of capital of 6%.

Answer 1