As a Financial Analyst of Morgan Investments Co., you are going to make a business investment decision on which of the two possible investments the company should undertake. Both projects cost $200,000 with a rate of return of 12%. Below are the cash profits of the two projects: Year 1 2 3 4 5 6 Project A Project B Profits ($) 36,000 42,000 56,000 44,000 35,000 32,500 66,000 37,300 40,000 56,000 51,000 39,650 42,500 80,000 Question one: Using Discounted Payback, NPV and IRR methods, appraise the two projects and advise the Financial Director which of the projects is viable and why. Question two: Which of the methods is superior? Justify your answer.

As a Financial Analyst of Morgan Investments Co., you are going to make a business investment decision on which of the two possible investments the company should undertake. Both projects cost $200,000 with a rate of return of 12%. Below are the cash profits of the two projects: Year 1 2 3 4 5 6 Project A Project B Profits ($) 36,000 42,000 56,000 44,000 35,000 32,500 66,000 37,300 40,000 56,000 51,000 39,650 42,500 80,000 Question one: Using Discounted Payback, NPV and IRR methods, appraise the two projects and advise the Financial Director which of the projects is viable and why. Question two: Which of the methods is superior? Justify your answer.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8TP: Fenton, Inc., has established a new strategic plan that calls for new capital investment. The...

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DEVCON INDUSTRIES LIMITED Income Statement For the years ended Dec. 31, 2018 and 2019 2018 2019 s000's so00's Sales 900000 1125000 Cost of Goods Sold 300000 306600 Gross Profit 600000 818400 Selling and Administrative Expenses 150000 156000 Depreciation Expense 54000 57000 Advertising Expenses 18000 21000 Earnings Before Interest and Taxes Interest Expense 378000 584400 3000 3000 Taxable Income 375000 581400 Taxation (35%) 131250 203490 Net Income 243750 377910 Dividends (40%) 97500 151164 Addition to Retained Earnings 146250 226746 Additional Information Share Price 21 27.3 Ordinary Shares Outstanding 120000000 144000000 DEVCON INDUSTRIES LIMITED Statement of Financial Position As at Dec. 31, 2018 and 2019 2019 s000's ASSETS 2018 LIABILITIES & EQUITY 2018 2019 Current Assets so00's Current Liabilities so00's s000's Inventories 264000 276000 Accounts Payables Notes Payables 138000 114000 Accounts Receivables 294000 330000 150900 132654 Cash and Equivalents 210900 270000 288900 246654…
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