You have been asked to evaluate2projects using only profitability models.

a) Show the formula and calculate Average Rate of Return(ARR)and Payback Period(PP)for the following projects.

b)If you were making a decision based purely on Average Rate of Return,which project would you select?

c)If you were making a decision based purely on Payback Period,which project would you select?

PROJECT APPLE	PROJECT BANANA
Interest Rate = 8%	Interest Rate = 4%
Inflation = 2%	Inflation = 9%
Fixed Investment = $200,000	Fixed Investment = $50,000
Annual Cash Inflow = $15,000	Annual Cash Inflow = $10,000
Avg. Annual Profit = $12,000	Avg. Annual Profit = $6,000