Question

Instructions Hunt Company uses five "metrics" to evaluate capital projects. For each independent set of projects, A, B and C, identify which of the three would be the preferred project based on EACH METRIC ALONE. # # Metric Project A Project B Project C Project D 1. Payback period ai Accounting Rate of Return 12% 11% 8% 9% 3. Net Present Value (100) 100 4. Internal Rate of Return 14% 15% 16% 12% 5. Present Value Index 1.10 1.05 0.98 1.00

Answer 1

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A Answer ON 09 Statement of preferred project Based on Each Metrix Alone 4 Sr. No. Merix (Refer explanation mentioned below) Prefferred Project 1 Payback Period Project D 2 Accounting Rate of Return Project A 3 Net Present Value Project C 4 Internal Rate of Return Project C 5 Present Value Index Project A 11 Explanation 12 Sr. No. 1 Payback period refer to the period in which the project cab=n recover its intial 13 investment, so the project with lowest payback period will be selected that is Project D 2. Accounting rate is annual rate of return on investment, so th project with highest 14 accounting rate of return will be selected that is Project A 3. Net Present value means difference of present value of inflows-outflows, so the 15 project with positive and highest npv will be selected that is Project C 4. Internal rate of return means the rate at which present value of inflows and outflows are same, so thw project with highest IRR should be selected Project C 5. Present value index is the index that is calculated by dividing present valu of inflows with present value of cash outflows, the project with highest PI, should be selected.