I have worked it out.. thanks anyway
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.