The management of Bhytyu Limited are considering several mutually exclusive projects with characteristics as shown in the following table. ProjectABCDE Initial Cost ($ millions)871219195118 Accounting rate of return13%13%15%22%11% Net Present Value ($ millions)011-1710 Payback Period (Years)35735 Internal Rate of Return9.5%13.2%8.0%11.7%12.5% Management’s stated goal is to maximise the wealth of the firm’s owners, and to be accepted any investment project must have a minimum investment yield of 10%.Required:Which of the above projects, if any, should be selected by management? Explain the rationale for your choice.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The management of Bhytyu Limited are considering several mutually exclusive projects with characteristics as shown in the following table.

Project	A	B	C	D	E
Initial Cost ($ millions)	87	121	91	95	118
Accounting rate of return	13%	13%	15%	22%	11%
Net Present Value ($ millions)	0	11	-1	7	10
Payback Period (Years)	3	5	7	3	5
Internal Rate of Return	9.5%	13.2%	8.0%	11.7%	12.5%

Management’s stated goal is to maximise the wealth of the firm’s owners, and to be accepted any investment project must have a minimum investment yield of 10%.

Required:

Which of the above projects, if any, should be selected by management? Explain the rationale for your choice.

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