A business owner has a choice of two investment projects. The estimated life of each project is 5 years.
Project One Project Two
Initial cost 320,000 280,000
Repair and maintenance costs per annum 25,000 15,000
Revenue returns before taking account of repair and maintenance cost
Year 1 30,000 40,000
Year 2 60,000 80,000
Year 3 100,000 80,000
Year 4 100,000 80,000
Year 5 75,000 75,000
Use the average rate of return method of investment appraisal to advise which project is the better investment.