MA Chapter 25 Questions Investment Appraisal
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100% thanks sir for your great explanation.
Greetings , Sir how was the interest of 20% arrived i have read though the question cant seem to figure it .
Which question are you referring to?
Mr. John in the Question 2 The cost of capital is 12% but in the answer is 20%, please pay attention the question 2 and if it’s possible refresh the question because I was looking and making calculations with 12% and not 20% .
The answer is completely correct!!
The question asks for the internal rate of return and so calculates the NPV at 12% and then makes a second ‘guess’ at 20%. It then uses the two NPV’s in order to calculate the IRR.
Have you not watched our free lectures on this?
hi mr Moffat
I hope u are doing well, I hope u read this message.
mr Moffat, why do find it difficult to do the exam kit, than the mock exam.
therefore is it fine if I sit for the exams.
100%
Thank You sir for the free lectures.
I got all answers correct.
thanks… Got it
Good 馃檪
In question 2, we take first rate as 12%, can we assume second rate 13%, is there will be a problem if I assume second rate to be nearest to the first rate?
It would not be sensible at all to use a second rate of 13%. All the four choices are higher than 13% and so obviously the NPV at 13% will still be positive. As I explain in my free lectures the relationship is not linear and choosing 12% and 13% will not give a good approximation at all to the IRR.
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
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.
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?
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.
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.
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%.
thanks sir!
You are welcome 馃檪
Any two rates of interest on the table or any two rates of interest from the option given in the question?
Any two as I wrote before and as I explain in the lectures. If rates are given in the question then it makes sense to make use of them.
Why we used operating profits for payback in this question?where payback should be calculated on returns….
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.
In this question, isn’t the NPV negative?
(33,830)
It is positive