The Fisheries Company Pty Ltd has two independent projects it could invest in to expand its fish breeding program. 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 7 years to recover costs.

	Project X	Project Y
Investment required ($'000)	1,800	2,600
Life of project (years)	10	15
Accounting Rate of Return - (ARR)	6.50%	7.50%
Payback period (years) (PP)	9	15
Net Present Value ($'000) (NPV)	25	35

Required

1. Review the ARR, PP and NPV methods and discuss whether it is acceptable to consider for the project.

(3 marks)

2. Make an overall recommendation as to whether Fisheries should go ahead with Project X or Project Y, or neither. The Board is aware that the company is having trouble raising sufficient finance for the projects. Ensure you justify your decision. (2 marks)