CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is forecast to generate annual cash flows of £300,000. Its estimated residual value after five years is £100,000. The Project B costs £120,000 with a forecast scrap value of £10,000. The Project B should generate annual cash flows of £40,000. The company operates a straight-line depreciation policy and discounts cash flows at 15 per cent p.a. CreditCard Ltd uses four investment appraisal techniques: payback period, net present value, internal rate of return and accounting rate of return (i.e. average accounting profit to average value of investment). A. According to the investment advice using payback period Project A should be preferred B. According to the investment advice using payback period Project B should be preferred C. According to the investment advice using payback period Both Project A and Project B are recommended D. We do not have enough information to draw conclusion regarding the investment advice using payback period
CreditCard Ltd, an credit card processor is considering the selection of one from two mutually exclusive investment projects (A and B), each with an estimated five-year life. The Project A requires initial investment of £1,000,000 and is
CreditCard Ltd uses four investment appraisal techniques: payback period,
| A. |
According to the investment advice using payback period Project A should be preferred |
|
| B. |
According to the investment advice using payback period Project B should be preferred |
|
| C. |
According to the investment advice using payback period Both Project A and Project B are recommended |
|
| D. |
We do not have enough information to draw conclusion regarding the investment advice using payback period |
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