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Hi Sir, please help me to answer the question below.
Initial cost $300,000
expected life 5 years
estimated scrap value $20,000
addition revenue
from project per year $120,000
incremental costs $30,000/year
cost of capital 10%A.What is the Net Present Value?
B. Accounting Rate of Return?I just don’t understand how to calculate the npv while there are no cashflow provided in question.
Of course there are cash flows provided!
There is an outflow at time 0 – the cost of 300,000
There is a net inflow of 120,000 – 30,000 = 90,000 per year from years 1 to 5
There is an inflow at time 5 of the scrap value of 20,000
There flows are discounted at 10% using the annuity factor for the annual net inflow, and the normal discount factor at 10% for the scrap proceeds.
Hi Sir,
please help me to answer for this question
Initial cost $300,000
expected life 5 years
estimated scrap value $20,000
addition revenue from project per year $120,000
incremental costs $30,000/year
cost of capital 10%I don’t know how to calculate to Accounting Rate of Return?
Have you watched our free lectures? They are a complete course for paper F2 and cover everything you need to be able to pass the exam well.
The average profit per year = 90,000 less depreciation of (300,000 – 20,000) / 5 per year
The average investment is (300,000 + 20,000) / 2
The ARR = average profit p.a. as a % of the average investment.
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