Homework Help is Here – Start Your Trial Now!
Business
Finance
Bluestone Ltd has provided the following figures for two investment projects, only one of which may be chosen.     Project A Project B     £ £ Initial outlay   190,000 170,000         Profit for year 1   55,000 15,000 2   40,000 25,000 3   25,000 45,000 4   10,000 65,000         Estimated resale value at end of year 4   50,000 20,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%. a) Calculate the payback period, net present value and accounting rate of return for each project, and provide brief recommendations as to what project needs to be chosen based on the following: The Payback Period. The Accounting Rate of Return/Return on Capital Employed. The Net Present Value.

Bluestone Ltd has provided the following figures for two investment projects, only one of which may be chosen.     Project A Project B     £ £ Initial outlay   190,000 170,000         Profit for year 1   55,000 15,000 2   40,000 25,000 3   25,000 45,000 4   10,000 65,000         Estimated resale value at end of year 4   50,000 20,000 Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%. a) Calculate the payback period, net present value and accounting rate of return for each project, and provide brief recommendations as to what project needs to be chosen based on the following: The Payback Period. The Accounting Rate of Return/Return on Capital Employed. The Net Present Value.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
See similar textbooks
icon
Related questions
Question

Bluestone Ltd has provided the following figures for two investment projects, only one of which may be chosen.

    Project A Project B
    £ £
Initial outlay   190,000 170,000
       
Profit for year 1   55,000 15,000
2   40,000 25,000
3   25,000 45,000
4   10,000 65,000
       
Estimated resale value at end of year 4   50,000 20,000

Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%.

a) Calculate the payback period, net present value and accounting rate of return for each project, and provide brief recommendations as to what project needs to be chosen based on the following:

  1. The Payback Period.

  2. The Accounting Rate of Return/Return on Capital Employed.

  3. The Net Present Value.

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question

Please calculate the Net present value for Project A and B in the way shown on photo (only shown as example). And explain how it has been calculated

Net present value (NPV) @15% cost of capital Project Alpha Cash Flow YO -£200,000 Y1 £127,500 Y2 £107,500 Y3 £87,500 Y4 £77,500 Scrap value £10,000 Net Present value Project Beta YO -£180,000 Y1 £53,750 Y2 £53,750 Y3 £73,750 Y4 £68,750 Com ala 65.000 Cash Flow 15% discount factor 1.000 0.8696 0.7561 0.6575 0.5718 0.5718 15% discount factor 1.000 0.8696 0.7561 0.6575 0.5718 0710 Present value -£200,000 £110,874 £81,281 £57,531 £44,315 £5,718 £99,719 Present value -£180,000 £46,741 £40,640 £48,491 £39,311 coro
Transcribed Image Text:Net present value (NPV) @15% cost of capital Project Alpha Cash Flow YO -£200,000 Y1 £127,500 Y2 £107,500 Y3 £87,500 Y4 £77,500 Scrap value £10,000 Net Present value Project Beta YO -£180,000 Y1 £53,750 Y2 £53,750 Y3 £73,750 Y4 £68,750 Com ala 65.000 Cash Flow 15% discount factor 1.000 0.8696 0.7561 0.6575 0.5718 0.5718 15% discount factor 1.000 0.8696 0.7561 0.6575 0.5718 0710 Present value -£200,000 £110,874 £81,281 £57,531 £44,315 £5,718 £99,719 Present value -£180,000 £46,741 £40,640 £48,491 £39,311 coro
Solution
Bartleby Expert
SEE SOLUTION
Follow-up Question

Can you please write the calculations step by step including the formulas. How did you calculate the Cash flow in order to calculate the cumulative cash flow after that?

Solution
Bartleby Expert
SEE SOLUTION
Knowledge Booster
New Line profitability analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS