Question

MACHINE A MACHINE B

Initial Investment $500,000600,000$

Year Exceptional Net Cash inflow

$1150,000200,000$

$2150,000100,000$

$3150,000200,000$

$4150,000100,000$

$5150,000200,000$

The firm is in the $40$ percent tax shield

The firm depreciates its assets using straight line method, with ten percent residual values for any activity taken by the organization.

The cost of capital of the firm is $12$ percent

REQUIRED:

$($i$).$ Calculate the Accounting Rate of return for each project. Assuming you were the financial manager which project to invest. Why?

$($ii$).$ Calculate the payback period of each project. Which project to invest? Why?

$($iii$).$ Calculate the Profitability Index of each project. Which project to invest? Why?

$($iv$).$ Calculate the internal rate of return for each project. Which project to invest? Why?Question

$\backslash$table$[[,$MACHINE A$,$MACHINE B$],[$Initial Investment,$500,000,600,000],[$Year$,$Exceptional Net Cash inflow,$],[1,150,000,200,000],[2,150,000,100,000],[3,150,000,200,000],[4,150,000,100,000],[5,150,000,200,000]]$

The firm is in the $40$ percent tax shield

The firm depreciates its assets using straight line method, with ten percent residual values for any activity taken by the organization.

The cost of capital of the firm is $12$ percent

REQUIRED:

$($i$).$ Calculate the Accounting Rate of return for each project. Assuming you were the financial manager which project to invest. Why?

$($ii$).$ Calculate the payback period of each project. Which project to invest? Why?

$($iii$).$ Calculate the Profitability Index of each project. Which project to invest? Why?

$($iv$).$ Calculate the internal rate of return for each project. Which project to invest? Why?