Question
Recently, the University of Essex has decided to build the student accommodation either in Colchester or Southend campus. In doing so, it will require investing
Recently, the University of Essex has decided to build the student accommodation either in Colchester or Southend campus. In doing so, it will require investing 1,000,000. The expected cash flows and expected profit of Colchester and Southend are given below. Colchester Southend Year Cash Flow () Expected Profit () Cash Flow () Expected Profit () 1 300,000 120,000 500,000 150,000 2 400,000 150,000 250,000 90,000 3 350,000 100,000 200,000 100,000 4 200,000 90,000 150,000 80,000 5 150,000 110,000 80,000 70,000 Required: a) Calculate for both projects (showing your workings): i. Accounting Rate of Return (ARR) [Marks 8] ii. Payback Period [Marks 6] iii. Net Present Value (NPV) considering 12% cost of capital. [Marks 10] b) Relying on your calculations (in part a) and reflecting on the current political crisis and rise in living costs, write a report to the Vice Chancellor advising which project he should invest in and why.
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