A company owned exclusively by residents in the New South Wales coastal community of Yamba is...
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A company owned exclusively by residents in the New South Wales coastal community of Yamba is offered three projects for which the cash flows are as follows. The directors work on 8 per cent as their RRR. Assume all cash flows occur at the end of the relevant years. There are no salvage values factored into the expected cash flows, and no salvage values are expected. Year 0 ($) Year 1 ($) Year 2 ($) Year 3 ($) Year 4 ($) Year 5 ($) Project A B C -497,000 161,000 -351,000 119,000 -498,000 138,000 Year 1 Year 2 0.9259 0.8573 199,000 111,000 199,000 The discount factors based on the RRR are as follows: Year 3 0.7938 195,000 158,000 194,000 Year 4 0.7350 Year 5 0.6806 124,000 181,000 174,000 177,000 196,000 166,000 Required: a. Calculate the three investment appraisal measures for each project. ARR for Project A: % ARR for Project B: % ARR for Project C: % PP for Project A: years PP for Project B: years PP for Project C: years. NPV for Project A: $ NPV for Project B: $ NPV for Project C: $ b. Rank the projects from 1 to 3 based on each individual investment appraisal measure (with rank of 1 given to the project that is the best in terms of the individual investment appraisal measure or overall). Ranking based on ARR Ranking based on PP Ranking based on NPV Project A → ◆ → Project B → ◆ ◆ Project C ◆ A company owned exclusively by residents in the New South Wales coastal community of Yamba is offered three projects for which the cash flows are as follows. The directors work on 8 per cent as their RRR. Assume all cash flows occur at the end of the relevant years. There are no salvage values factored into the expected cash flows, and no salvage values are expected. Year 0 ($) Year 1 ($) Year 2 ($) Year 3 ($) Year 4 ($) Year 5 ($) Project A B C -497,000 161,000 -351,000 119,000 -498,000 138,000 Year 1 Year 2 0.9259 0.8573 199,000 111,000 199,000 The discount factors based on the RRR are as follows: Year 3 0.7938 195,000 158,000 194,000 Year 4 0.7350 Year 5 0.6806 124,000 181,000 174,000 177,000 196,000 166,000 Required: a. Calculate the three investment appraisal measures for each project. ARR for Project A: % ARR for Project B: % ARR for Project C: % PP for Project A: years PP for Project B: years PP for Project C: years. NPV for Project A: $ NPV for Project B: $ NPV for Project C: $ b. Rank the projects from 1 to 3 based on each individual investment appraisal measure (with rank of 1 given to the project that is the best in terms of the individual investment appraisal measure or overall). Ranking based on ARR Ranking based on PP Ranking based on NPV Project A → ◆ → Project B → ◆ ◆ Project C ◆
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NPVA 161000 10081199000 10082 195000 10083124000 10084 181000 10085 161000 108199000 1082195000 10... View the full answer
Related Book For
Accounting Business Reporting For Decision Making
ISBN: 9780730302414
4th Edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver
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