Here is currently making investment appraisals of two potential long-term supermarket projects, A and B. Both projects needs the similar initial investment of £20m. The following ratios have been calculated for the projects.
Ratios Project A Project B
Payback period (years) 5 6
Accounting Rate of Return (ARR %) 15 18
Net Present Value (NPV £m in 15 years) 120 145
Internal Rate of Return (IRR %) 16 14
You are needed to give recommendations to the directors for a choice of either project A or project B. Here is not able to undertake the above two projects at the same time or a mixed project of A and B.