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capital budgeting help (Urgent)

Forums › ACCA Forums › ACCA FM Financial Management Forums › capital budgeting help (Urgent)

  • This topic has 0 replies, 1 voice, and was last updated 8 years ago by zaypat.
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  • October 12, 2016 at 9:31 pm #343090
    zaypat
    Member
    • Topics: 4
    • Replies: 1
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    hello, anybody here can help me with this exercise. there is a residual value and i don’t know how to calculate that. thank you for your help. Cash flows (£000s)
    Proposal 1 Proposal 2 Proposal 3 Proposal 4
    Rs’000 Rs’000 Rs’000 Rs’000
    Year 0 -120 -95 -80 -160
    Year 1 80 10 30 30
    Year 2 60 40 40 50
    Year 3 40 40 30 90
    Year 4 20 60 30 80
    Year 5 -40 50 20 60

    Residual value 0 5 0 40

    The cash flows for year 5 include, where applicable, the sale of the fixed assets purchased (year 0) at residual value. The company’s cost of capital is 10%.
    Required:
    (a) Calculate payback, accounting rate of return (ARR), internal rate of return (IRR) and net present value (NPV) for each project.
    (b) Identify which project should be selected by the company and explain, with reference to the figures calculated for part (a), why that project should be selected.

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