The hotel has a maximum of £800,000 available for capital investment

Note: these figures are cash flows; depreciation is straight-line over 4 years.

a) Calculate the payback period, accounting rate of return and the net present value for each of these proposals (18 marks)

b) From a financial perspective, recommend which project(s) the hotel should fund, with supporting justification for your answer, including method based discussion. (7 marks)
(BAHA, Question 2, Strategic Management Accounting Paper January 2012)

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Project A Project B | Project C Project C Project D NPV table @5% Cash flows 000s 000s 000s 000s Year Year 5% 0 -400,000 400,000-200,000-200,000 0 1 1 200,000 4,000 106,000 5,000 1 0.9524 2 200,000 4,000 106,000 5,000 2 0.9070 3 10,000 320,000 6,000 105,000 3 0.8638 4 10,000 320,000 4,000 105,000 4 0.8227