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Calculate the accounting rate of return

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BTML Ltd is considering which of two mutually exclusive projects to accept, each with a five-year life. Project A requires an initial expenditure of Tshs. 24,000,000 and it is forecasting to generate annual cash flows before depreciation of Tshs. 9million.The equipment purchased at time zero has an estimated residual value after five years of Tshs. 3 million. Project B costs Tshs. 6,600,000 and has a residual value of Tshs. 600,000 and cash inflows before depreciation of Tshs. 2500,000 per annum are anticipated. The company has a straight-line depreciation policy and a cost of capital of 15%.

a) Calculate the accounting rate of return

b) Calculate the Net Present Value

c) Which project is worth undertaking using the two methods above

Reference no: EM132201242

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