Determine a reasonably number

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Reference no: EM132635901

Overnight Housing' is a not-for-profit enterprise who provide emergency housing for those who find they are without a safe place to stay overnight. They also have a motel with excellent sea views that they are trying to determine whether they should expand and add an additional 10 rooms as their customers cross subsidise their emergency housing service. Any empty motel rooms are also utilised to provide overnight housing. 'Overnight Housing' have performed the calculations and found the following:

Method Result Accounting Rate of Return 2.859%

Payback Period 12-13 years

Net Present Value $9,545 positive

Required :

Question a. Explain each method listed above and what it tells the business, determine and list the decision rule that applies for each method (you need to determine a reasonably number) and include one advantage and one disadvantage of each method (do not repeat advantages or disadvantages).

Question b. Review the results individually, compare them with your estimated decision rule, and determine whether you can individually accept the proposed project for each method.

Question c. Draw an overall conclusion as to whether, based on the 3 methods, you would recommend the project.

NOTE: when providing your answer to part (c) you need to give consideration to the type of business that is being run by 'Overnight Housing'.

Reference no: EM132635901

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