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Initial cost- 300,000
Expected life- 5yrs
estimated scarp value- 20,000
Additional revenue from the project- 120,000 per yr
Incremental cost of the project- 30,000 per yr
Cost of capital- 10%Sir, the answer forms as such:
yr0 (300,000)
yr1 90,000- (120,000-30000)
yr2 90,000- (120,000-30000)
yr3 90,000- (120,000-30000)
yr4 90,000- (120,000-30000)
yr5 110,000- (140,000-30000)then the net cash flows * discount factor ryt?
Is my answer correct
plus incremental cost we need to subtract from the revenues ryt?Yes – what you have done is correct.
The incremental/extra cost is subtracted from the revenue to get the cash flow.
Instead of discounting each year separately (which is fine) it is faster to use the annuity factor for the 90,000 a year for 5 years, and then discount the scrap of 20,000 separately for 5 years.
Why do u have to discount the scrap for five yrs it should be only included during the last yr ryt???….
Sir can u show me how to find ARR for the above question???
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