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initial cost :300000
estimated life 5 yrs
scrap value :20000
additional revenue:120000per yr
incremental cost :30000 per yr
cost of capital 10 %sir this was in the F2 mock exam i cannot find the ARR equal to 21 % ? can you please tell me how is ARR 21%?
Have you watched my free lectures on ARR?
The net cash inflow is 120,000 – 30,000 = 90,000 per year
So the total over the 5 years is 450,000.
The total depreciation over 5 years is 300,000 – 20,000 = 280,000
So the total profit over 5 years = 450,000 – 280,000 = 170,000.
So the average annual profit = 170,000/5 = 34,000 per year.The average investment = (300,000 + 20,000) / 2 = 160,000
So the ARR = 34,000/160,000 = 21.25%
Do please watch my free lectures – they are a complete course for Paper F2 and cover everything needed to be able to pass the exam well.
Sir, which one do you prefer lectures or notes ? if i am reading your notes will i be missing something important that you talk about in your lectures only ?
Thank you ! 🙂
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