Question 3 (20 marks) CLO 5

A company is considering investing in three projects A, B and C with initial investment of $1,200 and a life of 5 years. The following table indicates the profits that are estimated from each project:

After Tax & Depreciation Profits

Year	Project A	Project B	Project C
1	300	300	450
2	300	200	450
3	300	400	350
4	300	350	100
5	300	350	100
Total	1,500	1,600	1,450

Required:

1. Calculate the Accounting Rate of Return on initial capital for each project. (6 marks)
2. Calculate the Accounting Rate of Return on average capital for each project. (6 marks)
3. Assuming that financing is available outline three (3) major factors which

will influence the investors decision to invest. (6 marks)

4. State two (2) drawbacks of the Accounting Rate of Return method of project appraisal. (2 marks)