Question
3. Happiness Company is considering a major investment project. The initial outlay of OMR 400,000 will, in subsequent years, be followed by positive cash flows,
3. Happiness Company is considering a major investment project. The initial outlay of OMR 400,000 will, in subsequent years, be followed by positive cash flows, as shown below. Year
1
2
3
4
Cash Flow
150,000
150,000
150,000
150,000
After the end of the fourth year this business activity will cease and no more cash flows will be produced. The initial OMR 400,000 investment in plant and machinery is to be depreciated over the four-year life of the project using the straight-line method. These assets will have no value after Year 4. The management judge that the cash inflows shown above are also an accurate estimation of the profit before depreciation for each of the years. They also believe that the appropriate discount rate to use for the firms projects is 10 per cent per annum.
a. Calculate the payback period (0.5 Marks) b. Calculate an accounting rate of return (Using Annual Basis). (2 Marks) i have 5 munit plz quiqly
Year | 1 | 2 | 3 | 4 |
Cash Flow | 150,000 | 150,000 | 150,000 | 150,000 |
After the end of the fourth year this business activity will cease and no more cash flows will be produced. The initial OMR 400,000 investment in plant and machinery is to be depreciated over the four-year life of the project using the straight-line method. These assets will have no value after Year 4. The management judge that the cash inflows shown above are also an accurate estimation of the profit before depreciation for each of the years. They also believe that the appropriate discount rate to use for the firms projects is 10 per cent per annum.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started