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Paris Resorts Inc. is a large company that is considering three long-term capital investments. Each...

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Question

Accounting

Paris Resorts Inc. is a large company that is considering three long-term capital investments. Each investment has a useful life of five (5) years. Consider the profit for the following three alternative investment options:

SHOW ALL WORK & CALCULATIONS

Discount Factor

Project A

Project B

Project C

Capital Investment

$175,000

$195,000

$205,000

Annual Profit:

Year 1

0.86957

$15,500

$21,000

$25,000

Year 2

0.75614

15,500

19,500

23,000

Year 3

0.65752

15,500

17,000

20,500

Year 4

0.57175

15,500

15,500

17,000

Year 5

0.49718

15,500

13,000

14,500

Total

$77,500

$86,000

$100,000

The discount factor for a five-year annuity at 15% is 3.35216.

Depreciation is calculated using the straight-line method with no residual/salvage value. The companys cost of capital is 15%.

Required: SHOW ALL OF YOUR WORK & CALCULATIONS PLZ.

  1. Calculate the following for each option:
  1. Payback period (6 marks)
  2. Average accounting rate of return (6 marks)
  3. Net present value (6 marks)

Explain which project Pariis Resorts Inc. should accept. (2 marks)

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