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marium salman: Please ask question in this forum but do not answer them – it is the Ask The Tutor Forum and you are not the tutor.
The market price does NOT have to be given in this question – it is not needed!
Haroon:
PE ratio = MV/EPS = MV/D x D/EPS
D/MV = 0.08, so MV/D = 1/0.08 = 12.5
EPS/D = 2.4, so D/EPS = 1/2.4
So PE ratio = 12.5 x 1/2.4 = 5.21
LJM Co is considering investing in a new project which will cost $160000.
It has an expected life of 4years and scarp value of $20000.
The anticipated net operating cashflows are as follow:
Year 1 $40000
Year 2 $60000
Year 3 $80000
Year 4 $20000Cost of capital is 10% pa.
What is the ARR?I am getting 55.5%. Can you plz explain how to get the correct answer? Thank you and appreciate your efforts Sir
The total operating cash inflows are (40000 + 60000 + 80000 + 20000) = 200,000
The total depreciation is 160,000 – 20,000 = 140,000
So the total profit is 200000 – 140000 = 60000
So the average profit p.a. is 60,000/4 = 15,000The average SOFP value of the asset is (160000 + 20000) / 2 = 90,000
So the ARRA = 15,000 / 90,000 = 16.7%
Sir, i have one doubt.
The total depreciation is 160,000 – 20,000 = 140,000
While calculating the depreciation, we should divide it by the number of years rite?? This is what i was doing 160 – 20/ 4yrs = 35
I am still not getting it. Please if you can explain this point. Thank you
Fine if you want – the depreciation is 35,000 a year.
However the operating cash inflow is 200,000/4 = 50,000 a year.
So the average profit p.a. is 50,000 – 35,000 = 15,000. Same as I wrote before 🙂LJM Co is considering investing in a new project which will cost $160000.
It has an expected life of 4years and scarp value of $20000.
The anticipated net operating cashflows are as follow:
Year 1 $40000
Year 2 $60000
Year 3 $80000
Year 4 $20000Cost of capital is 10% pa.
What is the ARR?dear sir how you calculate the ARR?
As my ans is 55.56% and the real ans is 16.67%The total cash inflows = 200,000
The total depreciation is 140,000
Therefore the total profit is 60,000 and the average profit per year is 60,000/4 = 15,000The average amount of the investment is (160,000 + 20,000) /2 = 90,000
Therefore the ARR = 15,000/90,000 = 16.67%
Sorry John,
I should be able to calculate X at this stage…. can you point me in the direction of where to start to do that please? I’ve drawn a complete blank.
Thanks!
I don’t understand what you are asking?
There is no mention of X in the last question that was asked here.
how to calculate effective cost of offering discount where only 60% customers taking advantage of discount?
It is irrelevant how many take the discount – we cannot force them to.
We calculate the effective cost, and if it is lower than our overdraft rate then it is worth offering the discount (if higher then it is not). We would hope everyone would take the discount, but we cannot force them to 🙂
R plc has in issue $400000 8% bonds redeemable in 5 years time at a premiuim of 10% and investor required return is 12%.
market value of debt?
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