a) i. Calculate Depreciation expense per year for each proposal.

ii. Calculate Accounting profit per year for each proposal

iii. Calculate the Accounting rate of return (ARR) for each proposal.

b) Calculate the payback period for each proposal

c) Calculate the Net Present Value (NPV) for each proposal, using a discount rate of 5%. (Present Value Table above)

Mattis Ltd is considering a new project. There are two proposals and only one can be accepted. Each initial outlay involves the purchase of a non-current asset with useful economic life of 3 years. Data relating to the proposals are as follows: Proposal 1 Proposal 2 Year Cash flows Initial investment (120,000) (95,000) Year 1 96,000 18,000 Year 2 60,000 41,000 Year 3 9,000 85,000 Residual value O 5,000 NOTES . The company uses the straight-line method of depreciation. Residual value mentioned is expected at the end of the economic useful life. The cash flows for year 3 do not include, where applicable, the expected proceeds from the disposal of the non-current asset at residual value. . Present Value Table Present value of 1 i.e. that is (1+r)-n where r= interest rate; n = number of periods until payment or receipt OR Present Value = FV/(1+r)" where FV= future value; r= interest rate; n = number of periods Periods 1 2 3 4 5 0.907 1% 0.990 0.980 0.971 0.961 0.951 2% 0.980 0.961 0.942 0.924 0.906 3% 0.971 0.943 0.915 0.888 0.863 Interest rates (0) 4% 5% 6% 7% 8% 9% 10% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.925 0.890 0.873 0.857 0.842 0.826 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.822 0.784 0.747 0.713 0.681 0.650 0.621