The finance manager of Wide plc is evaluating two capital investment projects which may assist the company in achieving its business objectives. Both projects will require an initial investment of £500,000 in plant and machinery, but it is not expected that any additional investment in working capital will be needed. The expected cash flows of the two projects are as follows:

The cost of capital of Wide plc is 10 per cent.

(a) For both the Broad and Keeling projects, calculate the return on capital employed (average investment basis), the net present value and the internal rate of return. 

(b) If the Broad and Keeling projects are mutually exclusive, advise Wide plc which project should be undertaken.

(c) Critically discuss the advantages and disadvantages of return on capital employed as an investment appraisal method.

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Broad project Keeling project Period 60,000 90,000 140,000 210,000 300,000 140,000 100,000 220,000 220,000 50,000 50,000 50,000 50,000 200,000