The following information relates to three potential investment projects that are being

considered by Injasuti Ltd$.$ Due to capital rationing only one of the three projects can be

pursued. Information relating to the three options available to Injasuti is presented below:

Project A Project B Project C

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Initial cost $150,000175,000160,000$

Expected life $5$ years $5$ years $5$ years

Expected scrap value $5,0008,0006,000$

Expected cash inflows

Year $155,00085,00045,000$

Year $260,00065,00050,000$

Year $365,00045,00060,000$

Year $458,00040,00065,000$

Year $550,00040,00055,000$

Additional information:

i$)$ Injasuti Ltd estimates its cost of capital to be $15\%.$

ii$)30,000$ depreciation is charged to Project A each year.

iii$)35,000$ depreciation is charged to Project B each year.

iv$)32,000$ depreciation is charged to Project C each year.

Required:

$1)$ Calculate the accounting rate of return, payback period and net present value for each of

the potential projects.

$2)$ Explain which of the three potential investment projects should be undertaken. Your

explanation should be based on the results of your calculations in part $($a$).$

Critically discuss the approaches to investment appraisal used in part $($a$).$ As part of your

critical evaluation, identify what additional information might be used to improve the

approach to investment appraisal.

Since the company does not have adequate funds to purchase the chosen option you

have been asked to provide a description of the sources of finance available to Injasuti

describing the advantages and disadvantages of each.