As discussed earlier, Kelly has found two (2) alternative options for funding the shop in the shopping centre.One to lease the shop on a monthly basis, the other to purchase the shop outright.

Your task is to perform the following evaluation methods and advise which option is the most suitable.

1. Calculate Accounting Rate of Return
2. Calculate Payback Period
3. Calculate Net Present Value

Financial information for the two alternatives is as follows:

	Purchase	Lease
Cost of investment	860,000	1,000,000
Life of asset	4 years	4 years
Annual depreciation (straight line)	215,000	250,000
Annual Sales	1,500,000	1,363,246
Annual Operating expenses	1,170,000	1,000,000
Scrap Value	0	0
Other information Operating Expenses excludes annual depreciation The Income Tax Rate is 30% The required rate of return is 8% PV Factors for 8% are: Year 0 - 1.000 Year 1 - 0.9259 Year 2 - 0.8573 Year 3 - 0.7938 Year 4 - 0.7350

Calculate Accounting Rate of Return

Calculate Payback Period

Calculate Net Present Value