Question

1)

The primary advantages of the average rate of return method are its ease of computation and the fact that a. there is less possibility of loss from changes in economic conditions and obsolescence when the commitment is short-term Ob. it is especially useful to managers whose primary concern is liquidity Oc. it emphasizes the amount of income earned over the life of the proposal Od. rankings of proposals are necessary

2)

3)

4)

5)

Answer 1

1)

option-c

It emphasizes the amount of income earned over the life of the proposal.

Account rate of return is easy to calculate, it considers the total savings over the entire life of the project. This method is useful for comparing the new project with the cost of cost reducing project.

2)

option-a

Average annual Income		18750
Initial Investment		$ 375,000.00
Average Return (18,750/375,000)		5%

4)

option-b

Calculation of Present value:

Present value factor at 10% for 4 year = 3.170

resent value of $25000 after 4 year @10% = $25000 x 3.170 = $79250

So answer b is correct option.

5)

option-b

NPV = (180000*.909 + 120000*.826 + 100000*.751+ 90000*.683+ 120000*.621) -490000 =$(16170) negative

Project should be Rejected