You have been asked to evaluate 2 projects using only profitability models. a)Show the formula and calculate Average Rate of Return (ARR) and Payback Period (PP) for the following projects. (4 marks). b) If you were making a decision based purely on Average Rate of Return, which project would you select? (1 mark) c) If you were making a decision based purely on Payback Period, which project would you select? (1 mark) Project Apple Project Banana Interest Rate = 7% Interest Rate = 6% Inflation = 2% Inflation = 3% Fixed Investment = $300,000 Fixed Investment = $400,000 Annual Cash Inflow = $30,000 Annual Cash Inflow = $20,000 Avg. Annual Profit = $10,000 Avg. Annual Profit = $16,000

Ans with formula and detailed work