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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 60Residual 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.Please do not put “urgent” in your headings – it will not get an answer any more quickly! (We answer within 24 hours, but we do not sit permanently at the computer 🙂 )
For calculating he NPV and IRR, the residual value is not needed because the question says that they are included in the cash flows that are given.
The residual value are needed in order to calculate the ARR, but on what you have typed you are told what the residual values are and so I don’t know why you are wanting to calculate them!
Do you not have an answer to the question in the same book in which you have found the question? (If not then you should be using a Revision Kit from one of the ACCA approved publishers – they contain lots of exam standard questions together with answers and workings.)
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