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ACC501 - Gdb idea solution.........discussion
01-12-2013, 03:17 PM
Post: #1
new page ACC501 - Gdb idea solution.........discussion
Please discuss here Acc 501
Total Marks 4
Starting Date Thursday, January 10, 2013
Closing Date Monday, January 14, 2013

Learning Objectives:

This particular Graded Discussion Board (GDB) will help the students understand:
· The concepts regarding two important capital budgeting techniques i.e. Internal Rate of Return (IRR) and Average Accounting Return (AAR).
· The analytical application of said techniques according to the provided information in a given scenario.
· The technical difference between the said important techniques.

Case:

Creative Company (Private) Limited has been operating in the field of financial consultancy business for last 25 years. It has become a well-known company due to its efficient and well-educated management. One of the financial experts of the company has recently left the company due to some unknown reasons. HR Department is now searching for a new financial expert who should have special expertise in the field of project evaluation as the company has to deal with the project evaluations for its clients on regular basis. After advertising the said vacancy, the company is now going through the recruiting process and the short listing has almost been done for the post. The interviews have been scheduled in the coming week. One of the HR managers suggests that the financial skills regarding project evaluation should be tested by having a discussion on two of the capital budgeting techniques i.e. IRR and AAR. On the day of interview, the interviewees have been provided with the following details about three projects:


Years
Project A
Project B
Project C
0
(Rs. 100,000)
(Rs. 100,000)
(Rs. 100,000)
1
Rs. 25,000
Rs. 15,000
0
2
25,000
20,000
0
3
25,000
25,000
0
4
25,000
30,000
0
5
25,000
35,000
Rs. 125,000
Depreciation (per year)
Rs. 5,000
Rs. 5,000
Rs. 5,000
Net Profit
Rs. 100,000
Rs. 100,000
Rs. 100,000
IRR
7.93 %
6.91%
4.56%
ARR
20.0 %
20.0 %
20.0 %

Required:

How would you respond to the following questions during the interview if you are one of the potential candidates for the said post?
Why IRR (Internal Rate of Return) is different for all three projects?
Why AAR (Average Accounting Return) is same for all three projects?
Which of the techniques is better to use in order to select the project in this particular scenario and why? Explain with rationale.

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01-12-2013, 10:33 PM
Post: #2
RE: ACC501 - Gdb idea solution.........discussion
hmmmmm

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