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Math Help - Capital investment - can you help me out please?

  1. #1
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    Capital investment - can you help me out please?

    I know how to calculate the payback period on this, but i dont know how to calculate the accounting rate of return and neither the net present value.

    1. A company is considering two capital expenditure proposals. Both proposals are for similar products and both are expected to operate for four years. Only one proposal will be accepted by th board of directors. The following information is available:
    Proposal A - A management team has put forward a proposal with the following cash flow forecast:

    Proposal A

    Cash Flow

    Initial investment 46,000
    Year 1 17,000
    Year 2 14,000
    Year 3 24,000
    Year 4 9,000
    Estimated scrap value at 4,000


    Proposal B- Another team has put forward an alternative proposal with the following profit findings:

    Proposal B
    Profit

    Initial investment 46,000
    Year 1 4,500
    Year 2 2,500
    Year 3 4,500
    Year 4 14,500
    Estimated scrap value 4,000
    at the end of year 4
    Depreciation is charged on the straight line basis. The company estimates its cost of capital at 20% pa.

    Required:

    Calculate for both proposals:

    a) the payback period (i already know this)

    B) the accounting rate of return

    C) net present value

    d) give two advantages for each of the methods of appraisal used above, and state with reasons which, if any, proposal you would recommend


    Can somebody answer me question B, C and D. Could you also show me the formulas that you have used to get the results? Thanks.
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  2. #2
    Junior Member
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    Nov 2007
    Posts
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    I have worked it out.. thanks anyway
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