Reeds

table Reed is evaluating two assets, A and B. Details about each of the asset is listed in the below. Assume each asset has a useful life of five years and depreciated on straight-line basis Asset A Asset B Initial Outlay (CFO) R200,000 R180,000 Cash Flow CFt) 70,000 80,000 90,000 90,000 100 000 Depreciation Cash Flow (CFt) Depreciation R80,000 90,000 30,000 40,000 40,000 Year (t) 2 3 4 5 40,000 40,000 40,000 40,000 40,000 36,000 36,000 36,000 36,000 36,000 The following conditions apply .Reed requires 12 percent retum on each of those equally risky assets Maximum payback is 2.5 years Maximum discounted payback period is 3.25 years Minimum accounting rate of retum is 30 percent Required: 4.1. Calculate the accounting rate of return from each asset, assess its acceptability and 4.2 Calculate the payback period for each asset assess its acceptability and indicate indicate which asset is best, using the accounting rate of retum. [4 which asset is best, using the payback peiood