Question 5 (6 marks) The Gumtree Company Ltd has two independent projects it could invest in. The financial operations manager has completed some analysis and has presented the information to the board. The board has asked you for advice. The entity uses an Accounting Rate of Return of not accepting any project that returns less than 7% and a Payback period criterion of not accepting any project that takes more than 10 years to recover costs. Investment required ($'000) Life of project (years) Accounting Rate of Return Payback period (years) Net Present Value ($'000) Project X Project Y 600 1,200 15 20 7.50% 8.50% 8 12 30 60 Required a) Are both projects acceptable to the entity? Explain why. (Hint: ensure you review each method and give consideration to the investment required and the life of the project.) (3 marks) 1 1 1 1 b) If the entity had a history of conservatism in its financial decision making, which project would you advise? Ensure you justify your selection. (3 marks) Question 5 (6 marks) The Gumtree Company Ltd has two independent projects it could invest in. The financial operations manager has completed some analysis and has presented the information to the board. The board has asked you for advice. The entity uses an Accounting Rate of Return of not accepting any project that returns less than 7% and a Payback period criterion of not accepting any project that takes more than 10 years to recover costs. Investment required ($'000) Life of project (years) Accounting Rate of Return Payback period (years) Net Present Value ($'000) Project X Project Y 600 1,200 15 20 7.50% 8.50% 8 12 30 60 Required a) Are both projects acceptable to the entity? Explain why. (Hint: ensure you review each method and give consideration to the investment required and the life of the project.) (3 marks) 1 1 1 1 b) If the entity had a history of conservatism in its financial decision making, which project would you advise? Ensure you justify your selection