A.) ABC inc. is considering investing in a new project with an initial cost of $500,000. The project is expected to generate cash flows of $100,000 per year for hte next fire years. After five years, the project will have a residual value of $50,000. Calculate the accounting rate of retrn (ARR) for this investment. B.) Given that the calculated ARR for this investment is 18% provide a critical analysis of whether ABC Inc. Should proceed with this project. Consider the strengths and weaknesses of using ARR as an investment appraisal method and discuss any other financial and non financial factors that ABC Inc. should take into account when making this investment decision.
A.) ABC inc. is considering investing in a new project with an initial cost of $500,000. The project is expected to generate cash flows of $100,000 per year for hte next fire years. After five years, the project will have a residual value of $50,000. Calculate the accounting rate of retrn (ARR) for this investment. B.) Given that the calculated ARR for this investment is 18% provide a critical analysis of whether ABC Inc. Should proceed with this project. Consider the strengths and weaknesses of using ARR as an investment appraisal method and discuss any other financial and non financial factors that ABC Inc. should take into account when making this investment decision.
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