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Section B Question 1a & b
Please could you show how you did the workings for this?
Thank you.1(a) There are net cash inflows as follows:
1 – 5 90,000 per annum (so discount using the 5 year annuity factor at 10%)
5 scrap of 20000 (so discount using the ordinary 5 year discount factor at 10%)1(b) The average profit is 120000 – 30000 = 90000 – 56000 (depreciation – (300000 – 20000)/5) = 34000
The average investment is (300000 + 20000) / 2 = 160000So ARR = 34000/160000 = 21.25%
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