Project 1 involves an outlay of $2.5m and gets an annual netincome of $1m for...

Project 1 involves an outlay of $2.5m and gets an annual net income of $1m for 5 years. Project 2 involves an outlay of $10m but gets no income until year 5. year project 1 project 2 0 -2.5 -10 1 1 0 2 1 0 3 1 0 4 1 0 5 1 15 . Use the payback method to decide which is the most attractive project. What is the accounting rate of return for project 1? Write your answer as a percent using the percent symbol. . What is the accounting rate of return for project 2? Write your answer as a percent using the percent symbol. Decide which is the most attractive project using the accounting rate of return method.

Solutions

Expert Solution

Simple IRR calculations done in excel to find the answer.

Formulates in the IRR cells are shown below

As we can see from above that the P1 has the IRR (internal rate of return) of 28.65% while P2 has only 2.09% Rate of return which makes Project 1 much better than Project 2

Attractive project using the accounting rate of return method is Project 1

The accounting rate of return for project 2 is 3.09%

Now you can use this formula in excel to calculate IRR for any project. The first value is -ve as it indicates the outflow.

orchestra answered 1 year ago

Next > < Previous

Related Solutions

1. The equivalent annual annuity method involves calculating the annual payment amount that a particular project...

1. The equivalent annual annuity method involves calculating the annual payment amount that a particular project would provide if it were an annuity. When comparing projects of unequal lives, the one with the higher equivalent annual annuity should be chosen. a. True b. False 2. Mutually exclusive projects sometimes have long and different lives which makes applying the replacement chain method difficult because the lowest common denominator is very large. The equivalent annual annuity is a substitute method which uses...

An investment project requires an initial outlay of $100,000, and is expected to generate annual cash...

An investment project requires an initial outlay of $100,000, and is expected to generate annual cash inflows of $28,000 for the next 5 years. The cost of capital is 12 percent. Determine the internal rate of return for the project (to the nearest tenth of one percent). a. 12.0% b. 12.6% c. 3.6% d. 12.4%

6. A project requires initial capital outlay of GH₡300,000. The project will provide annual cash flow...

6. A project requires initial capital outlay of GH₡300,000. The project will provide annual cash flow of GH₡80,000 for 5 years. what is the payback period? * Your answer

If Company XYZ plans to invest in a project with initial capital outlay $52,125, annual net...

If Company XYZ plans to invest in a project with initial capital outlay $52,125, annual net cash inflow $12,000 for 8 years, and discount rate 12%, what is the Company XYZ’s NPA, IRR, MIRR, Payback period, and Discounted Payback Period?

PROJECT A PROJECT B Initial Outlay -50000 -70000 Inflow year 1

PROJECT A PROJECT B Initial Outlay -50000 -70000 Inflow year 1 12000 13000 Inflow year 2 12000 13000 Inflow year 3 12000 13000 Inflow year 4 12000 13000 Inflow year 5 12000 13000 Inflow year 6 12000 13000 (NPV, PI, and IRR calculations) You are considering two independent projects, project A and project B. The initial cash outlay associated with project A is $50000, and the initial cash outlay associated with project B is $70000. The required rate of...

An initial cash outlay of $1.4 million is made for a project. In Year 1, the...

An initial cash outlay of $1.4 million is made for a project. In Year 1, the expected annual cash flow is $900,000. In Years 2–5 the expected annual cash flow is $1,000,000, and in Year 6, the expected annual cash flow is $1.3 million. A cost of capital of 15% is used. The IRR (internal rate of return) is ??? Please show work/calculation using Texas Calculator. No excel.

1. The length of time required to recover the initial cash outlay for a project is...

1. The length of time required to recover the initial cash outlay for a project is determined by using the: discounted cash flow method. net present value method. simple rate of return method. payback method. 2. A preference decision in capital budgeting: is concerned with whether a project clears the minimum required rate of return hurdle. involves using market research to determine customers' preferences. comes before the screening decision. is concerned with determining which of several acceptable alternatives is best....

1. A proposed loan of $1m has total annual interest rate and fees of 6%. The...

1. A proposed loan of $1m has total annual interest rate and fees of 6%. The loan’s duration is 5.7 years. The lender’s cost of funds is 5.25%. Comparable loans have an interest rate of 5.85%. The expected maximum change in the loan rate due to a change in the credit risk premium for the loan is 1.25% (based on actual change in credit risk premium for the worst 1% of comparable loans over some prior period). a. What is...

You are given 1 liter of each of the following solutions: 1M HCl, 1M NaOH, 1M...

You are given 1 liter of each of the following solutions: 1M HCl, 1M NaOH, 1M NH3 , 1M HC2H3O2 , 1MNH4Cl, 1MNaC2H3O2 a) Describe 4 different methods for preparing a buffer solution b) Describe how you would prepare 400 ml a buffer with a pH= 4.74 and a buffer with pH= 9.25 c) Draw titration curves for : strong acid-strong base, strong acid-weak base, strong base-weak acid. Label the graph axes, indicate initial pH and pH at equivalence.

1) A company invests in a new project that requires an initial capital outlay of $852790....

1) A company invests in a new project that requires an initial capital outlay of $852790. The project will generate annual net cash flows of $145612 over a period of 8 years. The after-tax cost of capital is 9%. In addition, a working capital outlay of $94620 will be required. This working capital outlay will be recovered at the end of the project’s life. What is the net present value of the project? Select one: a. $-141474 b. $-93987 c....

Subjects