Q.3 Calm Ltd has the following data relating to two investment projects, only one of which may be selected: Project Ace ($) 500,000 Project Bee ($) 500,000 Initial capital expenditure Cash-flows year 100,000 100,000 140,000 260,000 100,000 The cost of capital is 10 per cent, and depreciation is calculated using straight line method. 250,000 200,000 150,000 100,000 100,000 3 4 Estimated resale value at the end of year 4 a. Calculate for each of the project: i. Average annual accounting rate of return on average capital invested ii. Net Present Value 111. Internal Rate of Return b. Discuss the relative merits of the methods of evaluation mentioned above in (a).

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.