You have been asked to evaluate $2$ projects using only profitability models.

a$)$ Show the formula and calculate the Average $($Accounting$)$ Rate of Return $($ARR$)$ and Payback Period $($PBP$)$ for the following projects without considering the time value of money. $(4$ marks$)$

b$)$ If you were deciding based solely on Average $($Accounting$)$ Rate of Return results, which project would you select? $(1$ mark$)$

c$)$ If you were deciding based solely on Payback Period results, which project would you select? $(1$ mark$)$

Project Violet

Project Snowdrop

Initial investment $=$ $$100,000$

Initial investment $=$ $$90,000$

Annual Net Cash Flow $=$ $$10,000$

Annual Net Cash Flow $=$ $$30,000$

Average Annual Profit $=$ $$5,000$

Average Annual Profit $=$ $$10,000$

a$)$ Calculation for ARR and Calculation for PBP

b$)$ Based on Average $($Accounting$)$ Rate of Return $($ARR$),$ I would select Project $\_\_\_\_\_\_\_\_\_\_\_\_\_.$

c$)$ Based on Payback Period $($PBP$),$ I would select Project $\_\_\_\_\_\_\_\_\_\_\_\_\_.$