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Forums › ACCA Forums › ACCA FM Financial Management Forums › capital budgeting help (Urgent)
hello, anybody here can help me with this exercise. there is a residual value and i don’t know how to calculate that. thank you for your help. Cash flows (£000s)
Proposal 1 Proposal 2 Proposal 3 Proposal 4
Rs’000 Rs’000 Rs’000 Rs’000
Year 0 -120 -95 -80 -160
Year 1 80 10 30 30
Year 2 60 40 40 50
Year 3 40 40 30 90
Year 4 20 60 30 80
Year 5 -40 50 20 60
Residual value 0 5 0 40
The cash flows for year 5 include, where applicable, the sale of the fixed assets purchased (year 0) at residual value. The company’s cost of capital is 10%.
Required:
(a) Calculate payback, accounting rate of return (ARR), internal rate of return (IRR) and net present value (NPV) for each project.
(b) Identify which project should be selected by the company and explain, with reference to the figures calculated for part (a), why that project should be selected.