Answer Happy

The following 2 mutually exclusive projects Project (A) and Project (B) are available to Action Enterprise. They are into animal husbandry. The initial cash outlay and cash flows are shown below. Action Enterprise will use straight line depression over each of the assets 4 year life and there will be no residual value on either investment. Year's NOE Cash flow (A) N$ -240 000 -280 000 38 000 100 000 200 000 Cash flow (B) N$ -90 000 40 000 40 000 30 000 7 000 2 NB (a) The Company requires a minimum accounting rate of return of 25% on all its investments (b) it regularly applies a payback period of no more than 3.5years (c) The cost of capital is 12% nWhich project is more lucrative if the discount payback rule is required? (5) m) Apply the Accounting Rate of Return (ARR) test. Which project is more viable? (10) (iii) Determine which project is more lucrative if the NPV rule is applied. (10) (6) Which of the above project would you recommend to Action Enterprise? Explain in detail your choice of answer (5)