Question
You have been asked to evaluate 2 projects using only profitability models. a)Show the formula and calculate Average Rate of Return (ARR) and Payback Period
You have been asked to evaluate 2 projects using only profitability models.
a)Show the formula and calculate Average Rate of Return (ARR) and Payback Period (PP) for the following projects. (4 marks).
b) If you were making a decision based purely on Average Rate of Return, which project would you select? (1 mark)
c) If you were making a decision based purely on Payback Period, which project would you select? (1 mark)
| PROJECT APPLE | PROJECT BANANA |
| Interest Rate = 8% | Interest Rate = 4% |
| Inflation = 2% | Inflation = 9% |
| Fixed Investment = $200,000 | Fixed Investment = $50,000 |
| Annual Cash Inflow = $15,000 | Annual Cash Inflow = $10,000 |
| Avg. Annual Profit = $12,000 | Avg. Annual Profit = $6,000 |
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The Accounts Receivable Blueprint Unlocking Financial Success With Proven Strategies
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