Happy Printers Ltd is evaluating four mutually exclusive projects which are competing for the same investment capital.
Question:
Happy Printers Ltd is evaluating four mutually exclusive projects which are competing for the same investment capital. The company’s main objective is to maximize shareholder value.
Some analysis has been performed and you have been given the results by your manager who is not familiar with investment appraisal techniques.
Project | A | B | C | D |
Payback Period | 4 years | 5 years | 3 years | 3 years |
Accounting Rate of Return | 6% | 7% | 7% | 5% |
Net Present Value | £16,320 | £(16,100) | £16,100 | £15,900 |
Internal Rate of Return | 9% | 8% | 9% | 7% |
Initial Outlay Required | £50,000 | £35,000 | £45,000 | £60,000 |
Required
a) Recommend which one of the projects should be undertaken explaining why you have chosen that one.
b) Discuss the limitation of the investment appraisal techniques used for the benefit of your manager including reference to academic sources to support your explanations.
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling