Your organisation is considering expanding the Human Resources Department at an initial cost of £50,000. This will allow extra training to be provided for staff over the next five years, which is expected to increase net income by £7,000 per annum. (This is after charging £5,000 a year for depreciation). The cost of capital to be used for this investment project is 8%. Required: a) Calculate the Payback period of the investment proposal in years and months. b) Calculate the Accounting Rate of Return for the project. c) Calculate the Net Present Value (NPV) for the project. d) Write a note to your manager giving your recommendation of the proposal; with justification; and explaining the advantages of using Net Present Value compared with Payback Period for investment appraisals. e) What other information would you ideally want to have in order to help you reach a considered opinion on the project's feasibility?
Your organisation is considering expanding the Human Resources Department at an initial cost of £50,000. This will allow extra training to be provided for staff over the next five years, which is expected to increase net income by £7,000 per annum. (This is after charging £5,000 a year for depreciation). The cost of capital to be used for this investment project is 8%. Required: a) Calculate the Payback period of the investment proposal in years and months. b) Calculate the Accounting Rate of Return for the project. c) Calculate the Net Present Value (NPV) for the project. d) Write a note to your manager giving your recommendation of the proposal; with justification; and explaining the advantages of using Net Present Value compared with Payback Period for investment appraisals. e) What other information would you ideally want to have in order to help you reach a considered opinion on the project's feasibility?
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
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Transcribed Image Text:Question 3
Your organisation is considering expanding the Human Resources Department at an
initial cost of £50,000. This will allow extra training to be provided for staff over the
next five years, which is expected to increase net income by £7,000 per annum. (This
is after charging £5,000 a year for depreciation). The cost of capital to be used for this
investment project is 8%.
Required:
a) Calculate the Payback period of the investment proposal in years and months.
b) Calculate the Accounting Rate of Return for the project.
c) Calculate the Net Present Value (NPV) for the project.
d) Write a note to your manager giving your recommendation of the proposal; with
justification; and explaining the advantages of using Net Present Value
compared with Payback Period for investment appraisals.
e) What other information would you ideally want to have in order to help you reach
a considered opinion on the project's feasibility?
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