Intermediate: 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.

Calculate

(a) The pay back period lor each project.

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

(c) The Net present value of each project.

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

(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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Initial Cost Expected Life A 200 000 5 years Project B 230000 5 years C 180 000 4 years Scrap value expected 10000 15000 8000 Expected Cash Inflows () () () End Year 1 80000 100000 55000 2 70000 70000 65 000 3 65000 50 000 95 000 4 60000 50000 100000 5 55000 50000 The company estimates its cost of capital is 18% and discount factors are: Year 1 0.8475 Year 2 0.7182 Year 3 0.6086 Year 4 0.5158 Year 5 0.4371