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Please Help!
Still unable to get this correct:
Calculate accounting rate of return
Initial Cost: $300,000
Expected life:5yrs
Estimated Scrap value: $20,000
Revenue from project: $120,000 per yr
Incremental cost of project: $30,000 per yr
Cost of Capital: 10%The total operating cash flows over the 5 years is 5 x (120,000 – 30,000) = 450,000
The total depreciation over the 5 years is 300,000 – 20,000 = 280,000
Therefore the total profit over the 5 years is 450,000 – 280,000 = 170,000
Therefore the average profit per year = 170,000 / 5 = 34,000The average book value is (300,000 + 20,000) / 2 = 160,000
Therefore the ARR = 34,000 / 160,000 = 21.25%
Have you watched my free lectures on this? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
Your response is Greatly Appreciated!
I have watched the lectures, but must have missed that one
Thanks again for your help
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