Question 4 (Approximate completion time: 30 mins) [CLO 6] (Total 25 marks)

Sanju is considering investing in one of three projects: Smart Investor, Smart Plus and Smart Class with initial investments of $300,000, $250,000 and $350,000 respectively. Each project is expected to have a life of five (5) years and an ending book value of $150,000. The expected profits generated by the projects are as follows:

Profits after tax and depreciation

Smart Investor	Smart Plus	Smart Class
$	$	$
90,000	30,000	40,000
90,000	60,000	80,000
65,000	120,000	160,000
55,000	33,000	44,000
90,000	57,000	76,000
390,000	300,000	400,000

1. Please assist Sanju in deciding which project to invest in by calculating:

1. the average profits for each project. (6 marks)

2. the average capital for each project. (6 marks)

3. the accounting rate of return (ARR) on initial capital for each project.

(6 marks)

4. the accounting rate of return (ARR) on average capital for each project.

(6 marks)

1. Based on your calculations, which Project would you recommend Sanju to invest in?