The following information relates to three possible capital expenditure projects.Because of capital rationing only one project can be accepted.

Project A

Project B

Project C

Initial Cost

$230,000

$250,000

$190,000

Expected life

5years

5 years

4 years

Scrap value expected

$10,000

$15,000

$10,000

Expected Cash Inflows:

$

$

$

End Year 1

85,000

95,000

45,000

End Year 2

70,000

70,000

65,000

End Year 3

65,000

55,000

95,000

End Year 4

60,000

50,000

100,000

End Year 5

50,000

50,000

The company estimates cost of capital is 18%.The table below shows the present value of $1 at 14%, 18% and 22%.

Periods

14%

18%

22%

1

0.877

0.847

0.820

2

0.769

0.718

0.672

3

0.675

0.609

0.551

4

0.592

0.516

0.451

5

0.519

0.437

0.370

6

0.456

0.370

0.303

Required:

Calculate:

(a)The payback period for each project

(b)The accounting rate of return for each project

(c)The net present value for each project

(d)The internal rate of return

(e)Which project should be accepted - give reasons.

(f)Explain the factors that management would need to consider in addition to the financial factors before making a final decision on a project.