Question

2. Simple-Rate-of-Return (SRR) Project | SRR (%) Total Gross Returns $300,000 Average Annual Profits S20.000 $10,800 S10.600 10.0 9.0 8.0 $290,000 $280,000 (a) Using information above, rank these investments (A. B. and C) by order of preference (b) Defend your rankirg order using sound finarcial analysis principles.

Answer 1

using payback period method,

Payback Period =    Gross Return

   (Average annual profit)*(return on investment)

project A takes 300000 =    13.64 years to break even

   20,000*1.1

project B takes 290000 =    24.63 years to break even

   10,800*1.09

project C takes 280000 =    24.45 years to break even

   10,600*1.08

So, project A yields earlier the initial investments and hence shall be preferred for investment decision.