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Accounting rate of return PaybackPeriodNet present value Project 1 25% 2
Accounting rate of return PaybackPeriodNet present value
Project 1 25% 2.25years $69,700
Project 2 21% 5years $93,600
Evaluate the proposed projects below. Based on the information given, which project would you choose to take on? Clearly explain your reasons.
Expert Solution
On the basis of accounting rate of return the project that have higher accounting rate of return should be accepted. So, the project 1 should be accepted because it has higher accounting rate of return.
On the basis of payback period the project that have lower payback period should be accepted. So, the project 1 should be accepted because it has lower payback period.
On the basis of net present value the project that have higher net present value should be accepted. So, the project 2 should be accepted because it has higher net present value.
We should accept the project on the basis of NPV because it depends on time value of money. So, the project 2 should be accepted.
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