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Capital Budgeting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Capital Budgeting

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.
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    Posts
  • November 30, 2015 at 9:29 am #286340
    mumbaikar
    Participant
    • Topics: 50
    • Replies: 45
    • ☆☆

    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

    November 30, 2015 at 11:42 am #286391
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Have 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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