Two mutually exclusive projects are under consideration by the board of directors of Dragon Limited which...

 

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Two mutually exclusive projects are under consideration by the board of directors of Dragon Limited which are Universal and Regional. The financial information for Project Universal is as follows: Project Universal Initial Outlay Residual value at end of year 4 Expected annual profits: Year 1 Year 2 Year 3 Year 4 $5 me $1 m ܒܢ $800,000+ $900,000 $1 me $1.5 me You are to use the straight-line depreciation method for the project (where applicable). Information on Project Regional are as follows: • Accounting rate of return (ARR) is 60% • Payback is 3 years Net present value (NPV) is $1.75m at a discount rate of 13% Required: + Which project would you choose if you have to base your decision on the accounting rate of return (ARR), Payback and the Net Present Value (NPV)? 4 Two mutually exclusive projects are under consideration by the board of directors of Dragon Limited which are Universal and Regional. The financial information for Project Universal is as follows: Project Universal Initial Outlay Residual value at end of year 4 Expected annual profits: Year 1 Year 2 Year 3 Year 4 $5 me $1 m ܒܢ $800,000+ $900,000 $1 me $1.5 me You are to use the straight-line depreciation method for the project (where applicable). Information on Project Regional are as follows: • Accounting rate of return (ARR) is 60% • Payback is 3 years Net present value (NPV) is $1.75m at a discount rate of 13% Required: + Which project would you choose if you have to base your decision on the accounting rate of return (ARR), Payback and the Net Present Value (NPV)? 4

Answer rating: 100% (QA)

Accounting rate of return Payback period Net present value NPV Working notes Accounting rate of retu... View the full answer