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As a graduate accountant, you are asked by your manager to evaluate two investment projects....

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Accounting

As a graduate accountant, you are asked by your manager to evaluate two investment projects. Both projects concern the purchase of new machinery. The follow data are available for each project.

A
Cost of machine 100,000 80,000
Expected net profit
Year 1 20,000 5,000
Year 2 10,000 10,000
Year 3 5,000 15,000
Year 4 5,000 10,000
Estimated residual value at the end of Year 4 20,000 16,000

Assume the required rate of return for both projects are 15%, and straight-line depreciation is used.

a. Calculate Accounting Rate of Return for both projects.

b. Calculate the payback period for both projects.

c. Calculate the NPV for both projects.

d. Based on your answers to part (c), should we accept any of these two projects? Why?

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