The Whitsunday Cruise Ship Company Pty Ltd has two independent projects it could invest in to expand its Whitsunday cruising capacity. 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 6% and a Payback Period criterion of not accepting any project that takes more than 9 years to recover costs.

Required

1. Explain the Accounting Rate of Return, Payback period and Net Present Value and state whether it is acceptable to consider for the project.
2. The Board is aware that the company is having trouble raising sufficient finance for the projects. Make an overall recommendation as to whether the Whitsunday Cruise Ship Company Pty Ltd should go ahead with Project A or Project B, or neither ensure you justify your answer.

Project A Project B 1,200 1,850 8 6.50% 5.95% 8.5 10.5 Investment required ($'000) Life of project (years) Accounting Rate of Return Payback period (years) Net Present Value ($'000) 14 18 21