QUESTION 3

1. Albert Constructions, a manufacturing firm, is considering investing $110,000 in a new machine. It is estimated that the net cash flow per year will be $25,000 and the machine will have a 10-year useful life. There is no residual value expected at the end of the 10-year life. The accounting rate of return is:

   		10.55%
   		15.86%
   		25.45%
   		22.72%

QUESTION 14

1. Martin Short, Managing Director of Mills Ltd, has received a report from his Finance Manager recommending four investment projects for his approval however, the firm has only sufficient funds to invest in one project. The firm's rate of return is 6%. The Accounting Rate of Return for each project is: A = 10%, B = 8%, C= 12%, D = 14%. Short will select:

   		Project A.
   		Project B.
   		Project C.
   		Project D.

1 points

QUESTION 15

1. McLeod Constructions, a manufacturing firm, is considering investing $330,000 in new equipment. It is estimated that the net cash flow per year will be $75,000 and the equipment will have a 10-year useful life. There is no residual value expected at the end of the 10-year life. The accounting rate of return is:

   		10.55%
   		15.86%
   		25.45%
   		22.72%

1 points

QUESTION 16

1. The statement concerning with the ARR and the payback methods that is not correct is:

   		Both methods are based on accounting profits
   		If two projects have the same ARR the one with the lowest payback period would be preferred
   		Both methods are simplistic and may be useful for a quick analysis to sort out projects for further analysis
   		Both methods are quite easy for managers to understand
   		None of the statements is incorrect