| Investment Appraisal - Exercise 3.18 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | Unnamed: 5 | Unnamed: 6 | Unnamed: 7 | Unnamed: 8 | 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). |