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Question 5 of 28

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The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted.

Project: A B C .

Initial cost R100 000 R115 000 R90 000

Expected life 5 years 5 years 4 years

Scrap value R5 000 R7 500 R4 000

Cash-inflows R R R

End year 1 40 000 50 000 27 500

2 35 000 35 000 32 500

3 32 500 25 000 47 500

4 30 000 25 000 50 000

5 27 500 25 000

The company estimates its cost of capital is 18%.

Required:

(a) Calculate the ARR, on average investment for project C.

ARR = 17.14%

ARR = 26.67%

ARR = 37.63%

ARR = 18%

None of the above