QUESTION 1 You are considering the following two mutually exclusive projects. Both projects will be depreciated using
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QUESTION 1
You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Should you accept or reject these projects based on the average accounting return?
Project A | Project B | ||
Year | Cash Flow | Year | Cash Flow |
0 | -$87,000 | 0 | -$85,000 |
1 | $31,000 | 1 | $15,000 |
2 | $37,000 | 2 | $20,000 |
3 | $44,000 | 3 | $90,000 |
Required rate of return | 12% | Required rate of return | 14% |
Required payback period | 2.5 years | Required payback period | 2.5 years |
Required accounting return | 10% | Required accounting return | 11% |
Related Book For
Intermediate Financial Management
ISBN: 978-1111530266
11th edition
Authors: Eugene F. Brigham, Phillip R. Daves
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