Question 3

Question:

An initial investment of RO.260,000 is expected to generate annual cash inflow of RO. 64,000 for 5 years. Depreciation is allowed on straight line basis. It is estimated that the project will generate scrap value of RO.20,000 at the end. Another investment alternative ie; Project B has RO>180,000 with 50,000 for 5 years. Depreciation is on straight-line basis and scrap value is 15,000.

1)Calculate its Accounting Rate of Return assuming that there are no other expenses (5 Marks)

2)Describe the ARR rule and list down its merits and demerits (5 Marks)

(Total 10 Marks)

A maximum of another 10 Marks will be awarded for:

1) Formatting (3Marks) and

2) CU Harward Referencing (7 Marks)