Calculate each of the accounting rate of return measures

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Nicholas Cash of Advantage Tennis Coaching (ATC) is considering the purchase of a bus to transport junior elite players to various tournaments in South East Queensland and Northern New South Wales. Purchase of the bus will require an initial outflow of $150 000. As a result of attending the tournaments, Nicholas believes ATC can generate net cash inflows from sponsorship deals, new player coaching fees and tournament prize money over the next four years of $46 000, $57 500, $46 000 and $69 000 respectively. In addition, the bus is estimated to have a salvage value of $57 500 at the end of year 4. Nick's required rate of return is 10 per cent.

Required

Problem 1: Calculate each of the following measures and comment on their significance:

A. Accounting Rate of Return (ARR)
B. Payback Period (PP)
C. Net Present Value (NPV).

Reference no: EM132929432

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