Reference no: EM132618828

Question - Wyndham Ltd is considering investing in a new project and has identified two alternatives: Project Hunter Valley and Project Coonawarra. The details of each project are given below: Project Hunter Valley Project Coonawarra Initial cost (paid at time 0) $120,000 $200,000 Cash flow received Yr 1 $60,000 $60,000 Cash flow received Yr 2 $80,000 $80,000 Cash flow received Yr 3 $50,000 $160,000 Method 1: Net Present Value $43,834 $51,156 Method 2: Payback Period 1.75 years 2.375 years Method 3: Accounting Rate of Return 38.9% 33.3% Both projects will have no residual value (will be worth zero) after the 3rd year.

Required -

a. For each method, state the decision rule and identify the project that yields the most favourable result for Wyndham Ltd.

b. Draw an overall conclusion as to whether, based on the 3 methods, you would recommend Project Hunter Valley or Project Coonawarra and why.