The owners of Film Animation Ltd wish to expand the business by investing in new technology. They have the necessary capital and have identified two potential projects, only one of which can be financed. The details are as follows;

(a) Calculate the accounting rate of return for each project.

(b) Recommend which of the two projects is likely to be the better investment, giving reasons to support your advice.

(c) Comment on any limitations of the technique you have used.

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Project A Project B E Average sales 318,500 358,000 Average cost of sales including expenses 240.500 264,400 Average capital employed 650,000 780,000