1. Is a 15% accounting rate of return for a machine a good rate?
2. A company can invest in only one of two projects, A or B. Each project requires a $20,000 investment and is expected to generate end of period, annual cash flows as follows:
|
Year 1 |
Year 2 |
Year 3 |
Total |
|
|
Project A |
$12,000 |
$8,500 |
$4,000 |
$24,500 |
|
Project B |
4,500 |
8,500 |
13,000 |
26,000 |
Assuming a discount rate of 10%, which project has the higher net present value?
3. Two investment alternatives are expected to generate annual cash flows with the same net present value (assuming the same discount rate applied to each). Using this information, can you conclude that the two alternatives are equally desirable?