Refer to Present Value Tables The Company Requires a Minimum Rate of Return of 8

question 96

Essay

Refer to Present Value Tables. Waterfall Country Club Company is considering two projects. $\begin{array}{lrr}&\text { Golf Course Upgrade }&\text { Clubhouse Upgrade }\\\text { Initial investment } & \$ 500,000 & \$ 100,000 \\\text { Annual cash flows } & \$ 88,500 & \$ 34,320 \\\text { Life of the project } & 10 \text { years } & 4 \text { years } \\\text { Depreciation per year } & \$ 50,000 & \$ 25,000\end{array}$ The company requires a minimum rate of return of 8%.
Required:
A. Calculate the accounting rate of return for each project.
B. Calculate the net present value for each project.
C. Calculate the internal rate of return for each project.
D. Which project should be chosen? Explain your reasoning.

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Definitions:

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