Question: Transport Ltd is considering fitting a mounted forklift to each of its five delivery trucks. They have decided to base their decision on the accounting

Transport Ltd is considering fitting a mounted forklift to each of its five delivery trucks. They have decided to base their decision on the accounting rate of return and provide you with the following information:

The cost of the mounted forklifts will be €95,000 and they are expected to have a five year life with a scrap value of €5,000. The purchase of the forklifts is expected to result in a

€10,000 cash inflow in the first year and cash inflows of €40,000, €40,000, €60,000 and

€45,000 in years two to five respectively

A) Explain what risk is in the context of capital investment decisions and why it is particularly important in this context.

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SOLUTION In the context of capital investment decisions risk refers to the uncertainty or variability associated with the expected outcomes of an inve... View full answer

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