Paris Resorts Inc. is a large company that is considering three long-term capital investments. Each...
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Accounting
Paris Resorts Inc. is a large company that is considering three long-term capital investments. Each investment has a useful life of five (5) years. Consider the profit for the following three alternative investment options:
SHOW ALL WORK & CALCULATIONS
Discount Factor
Project A
Project B
Project C
Capital Investment
$175,000
$195,000
$205,000
Annual Profit:
Year 1
0.86957
$15,500
$21,000
$25,000
Year 2
0.75614
15,500
19,500
23,000
Year 3
0.65752
15,500
17,000
20,500
Year 4
0.57175
15,500
15,500
17,000
Year 5
0.49718
15,500
13,000
14,500
Total
$77,500
$86,000
$100,000
The discount factor for a five-year annuity at 15% is3.35216.
Depreciation is calculated using the straight-line method with no residual/salvage value. The companys cost of capital is 15%.
Required: SHOW ALL OF YOUR WORK & CALCULATIONS PLZ.
Calculate the following for each option:
Payback period (6 marks)
Average accounting rate of return (6 marks)
Net present value (6 marks)
Explain which project Pariis Resorts Inc. should accept. (2 marks)
Answer & Explanation
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