Tim is considering investing in three projects: Green, Blue and Crimson with initial investments of...
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Accounting
Tim is considering investing in three projects: Green, Blue and Crimson with initial investments of $702,000, $450,000 and $900,000 respectively. Each project is expected to have a life of five years and a closing book value of $150,000 The expected profits (after depreciation and tax) generated by the projects are: Green - $877,500 (202,500; 202,500; 146,250; 123,750; 202,500) Blue - $675,000 (67,500; 135,000; 270,000; 74,250; 128,250) Crimson - $900,000 (90,000; 180,000; 360,000; 99,000; 171,000)
Calculate
i. the average profits for each project
ii. the average capital for each project
iii. the accounting rate of return (ARR) on initial capital for each project
iv. the accounting rate of return (ARR) on average capital for each project
v. Based on above, which project would you recommend to invest. Justify?
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