Payback, accounting rate of return and NPV calculations plus a discussion of qualitative factors The following information relates to three possible capital expenditure projects. Because of capital rationing only one project can be accepted.

The company estimates its cost of capital is 18%. Calculate

(a) The pay back period for each project. (4 marks)

(b) The Accounting Rate of Return for each project. (4 marks)

(c) The Net present value of each project. (8 marks)

(d) Which project should be accepted - give reasons. (5 marks)

(e) Explain the factors management would need- to consider: in addition to the financial factors before making a final decision on a project.

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Project A B Initial Cost Expected Life 200000 230000 5 years Scrap value 10000 5 years 15000 180000 4 years 8000 expected Expected Cash Inflows () () () End Year 1 80000 100 000 55000 2 70000 70000 65 000 3 65 000 50 000 95.000 4 60000 50 000 100000 5 55000 50 000