Question
3. A company owned exclusively by residents in the New South Wales coastal community of Coffs Harbour is offered three projects for which the cash
3. A company owned exclusively by residents in the New South Wales coastal community
of Coffs Harbour is offered three projects for which the cash flows are as per the table
below in thousands of dollars. The directors work on 12 per cent as their RRR. Assume
all cash flows occur at the end of the relevant years. There are no salvage values factored
into the expected cash flows, and no salvage values are expected.
Project Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
A -900 300 260 300 220 140
B -800 180 180 240 260 260
C -820 500 120 120 120 380
Required:
- Calculate the Accounting Rate of Return, Payback Period and Net Present Value for each project. Show workings.
- Rank the projects and advise the directors which projects, if any, to accept. Give
your reasons.
Show all calculations
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