| Investment Appraisal - Exercise 3.18 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | SOLUTION |
|---|---|---|---|---|---|
| ARR Using the Original Equity Expenditure Method: | |||||
| Average Profit | x 100 | ||||
| Original Equity Expenditure | |||||
| Project | £16.9 / 4 Years | x 100 | |||
| 35 | |||||
| 0.1207142857142857 | |||||
| Using the Payback Method: | |||||
| Project | Year | Net Cash Inflows | Cumulative Net Cash Inflows | ||
| 1 | 8.8 | 8.8 | |||
| 2 | 10.2 | 19 | |||
| 3 | 11.4 | 30.4 | |||
| 4 | 6.5 | 36.9 | |||
| Payback Period = | 3 years + (4.6 / 6.5) x 365 days | ||||
| 3 years 258 days | |||||
| The project should be adopted as Infield PLC wanted a ARR of 10% and | |||||
| this project is making a higher return than this (12.07%). Also the project | |||||
| is being paid back in less that the 4 years required (3 years 258 days). |