Your organisation is considering expanding the Human Resources Department at an initial cost of £50,000. This will allow extra training to be provided for staff over the next five years, which is expected to increase net income by £7,000 per annum. (This is after charging £5,000 a year for depreciation). The cost of capital to be used for this investment project is 8%. Required: a) Calculate the Payback period of the investment proposal in years and months. b) Calculate the Accounting Rate of Return for the project. c) Calculate the Net Present Value (NPV) for the project. d) Write a note to your manager giving your recommendation of the proposal; with justification; and explaining the advantages of using Net Present Value compared with Payback Period for investment appraisals. e) What other information would you ideally want to have in order to help you reach a considered opinion on the project's feasibility?

Your organisation is considering expanding the Human Resources Department at an initial cost of £50,000. This will allow extra training to be provided for staff over the next five years, which is expected to increase net income by £7,000 per annum. (This is after charging £5,000 a year for depreciation). The cost of capital to be used for this investment project is 8%. Required: a) Calculate the Payback period of the investment proposal in years and months. b) Calculate the Accounting Rate of Return for the project. c) Calculate the Net Present Value (NPV) for the project. d) Write a note to your manager giving your recommendation of the proposal; with justification; and explaining the advantages of using Net Present Value compared with Payback Period for investment appraisals. e) What other information would you ideally want to have in order to help you reach a considered opinion on the project's feasibility?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 15.15E

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