A company is planning to expand its present business activity. It has two alternatives for the expansion programme and corresponding cash flows are given in the following table. Each alternative has a life of 10 years and a negligible salvage value. Evaluate them based on the rate of return method and suggest the best alternative to the company.

Initial Investment Yearly Revenue

(!) (!)

Alternative 1 1,500,000 300,000 Alternative 2 1,800,000 350,000 AppendixLO1