Desert Birds is considering investing in a new project, the details of which are as...
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Accounting
Desert Birds is considering investing in a new project, the details of which are as follows: GH GH Project cost 40,000 Estimated net profit: Years 1 9,600 2 14,400 3 24,000 4 20,000 5 4,000 2 | A P E L Additional information; The projects life span is 5 years. Depreciation is based on the straight line method The estimated residual value of the project at the end of its useful life is GH8,000. The cost of capital is 10%.
i. Using the NPV technique, assess the viability of the project. (14 marks)
ii. Managers can be encouraged to act in shareholders best interests through incentives that reward them for good performance but punish them for poor performance.
Required; explain four (4) specific mechanisms used to motivate managers to act in shareholders best interests. (8 marks)
iii. Explain four (4) demerits of the accounting rate of return technique of capital budgeting.
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