Practice Mock

Part (a):

Outflow at time 0: (300,000)
Net inflow of 90,000 per year (120,000 – 30,000) for 5 years, so multiply 90,000 by the 5 year annuity discount factor at 10%.
Inflow at time 5 of 20,000, so multiply 20,000 by the present value factor for 5 years at 10%.

Part (b):

Net cash flow = 90,000 p.a.
Depreciation = (300,000 – 20,000)/5 = 56,000
So, average annual profit = 90,000 – 56,000 = 34,000.
Average investment = (300,000 + 20,000) / 2 = 160,000.
Therefore ARR = 34,000/160,000 = 21.25%

Part (c)

Net cash receipt = 90,000 per year.
Therefore time taken to get back 300,000 = 300,000/90,000 = 3.33 years

Part (d)

If you have watched the lectures then I am surprised you need an answer given for this question!
The IRR of 13% is more that the cost of capital of 10%, and therefore the project will have a positive NPV.

You are welcome.

70% is certainly more than enough. However, it would be better to get hold of a Revision Kit from one of the ACCA approved publishers – they contain lots of exam standard questions, and also more mock exams. Just one mock exam is not enough practice because there are so many different ways that the examiner can test the topics.

I don’t really think there is much point in paying for the mocks on the ACCA website.

The approved publishers are BPP and Kaplan, and if you have done the mocks in their Revision Kits, then you don’t really need any more 🙂