ABC Ltd is considering a new project for which the following info is available
initial cost= $300000
expected life =5 years
Estimated scrap value= $20000
Addition revenue from the project per year= $120000
Incremental costs of the project = $30000 per year
cost of capital= 10%
1)calculate NPV of the project to the nearest$
2) calculate Accounting rate of return of the project to the nearest%
please sir help me because I just have exams 2 days after
Ask the Tutor ACCA MA
Capital Budgeting
10y ago#1Have you watched our free lectures on this?
There is an outflow at time 0 of 300,000 - the PV of this is 300,000
There is an net inflow of 120,000 - 30,000 = 90,000 per year for 5 years. You discount these flows by using the 5 year annuity discount factor at 10%
There is an inflow at time 5 of the scrap proceeds of 20,000. You discount this using the ordinary 5 year discount factor at 10%.
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