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MA Chapter 23 Questions Investment Appraisal

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  1. yusra97 says

    September 10, 2020 at 11:25 am

    sir in payback period question 3 and 4..
    shouldnt it be 2years
    cz 270-230=40/100 +2= 2.4 year
    nd in question 4 259310-270000/303830 so it’s 3.24 year
    sir i have watched your lecture twice. and i dont know but im not getting the same answer as in the practice question

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    • nitinpudasaini says

      December 27, 2020 at 2:58 pm

      2.4 year means more than 2 years and within 3 years. Similarly, 3.24 years mean more than 3 years and within 4 years.

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  2. michaelmugendi says

    December 12, 2019 at 7:26 pm

    please help me solve this…….how will the cash flows look like?
    able ltd is considering a new project for which the following information is available:
    initial cost $300000
    expected life 5yrs
    estimated scrap value $20000
    addition revenue from the project- $120000per year
    incremental cost of the project $30000per year
    cost of capital-10%
    calculate the NPV?

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    • John Moffat says

      December 13, 2019 at 8:38 am

      In future please ask this sort of question in the Ask the Tutor Forum, and not as a comment on a lecture.

      There is a cash outflow of 300,000 at time 0.
      There is an annuity of 90,000 (120,000 – 30,000) per year from years 1 to 5.
      There is an inflow of 20,000 at time 5.

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  3. safashaikh19 says

    September 25, 2019 at 8:44 am

    How do we get 20% in the second question while discounting?I understand the questions given in the notes have given different percentage figures. I don’t understand how to apply it here.

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    • John Moffat says

      September 25, 2019 at 1:49 pm

      As I explain in my free lectures (and as the answer to this question explains) you can use any two rates of interest – it does not have to be 12% and 20%.

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      • safashaikh19 says

        September 26, 2019 at 3:15 pm

        thanks sir!

      • John Moffat says

        September 27, 2019 at 8:56 am

        You are welcome 馃檪

  4. waqasnaeem16 says

    September 23, 2019 at 6:47 pm

    Why we used operating profits for payback in this question?where payback should be calculated on returns….

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    • John Moffat says

      September 24, 2019 at 8:03 am

      Payback period should be calculated using the cash flows, as explained in our free lectures.

      If you are referring to question 1, then the question has given the operating cash flows and not the operating profits.

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  5. salardehbashi says

    July 11, 2019 at 7:39 pm

    In this question, isn’t the NPV negative?
    (33,830)

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    • hanscad007 says

      August 4, 2019 at 3:39 pm

      It is positive

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