Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › investment appraisal

- This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.

- AuthorPosts
- October 22, 2015 at 5:08 pm #278446
What is the Internal Rate of Return of the machine (to the nearest %)?

A 16%

B 17%

C 18%

D 19%A company is considering investing in a new machine that will cost $270,000 and will last for 4 years with a

scrap value at the end of 4 years of $20,000.

It is expected to generate operating cash inflows each year as follows:

Year 1: $50,000

Year 2: $180,000

Year 3: $100,000

Year 4 $50,000

The cost of capital is 12% per annum.sir how have u calculated the irr in this i cannot understand why have you taken it on 20 percent and then in irr you have assumed it as 8 percent please explain i have done the rest

October 22, 2015 at 5:22 pm #278449In calculating the IRR you can make any two guesses and then approximate between them.

12% is an obvious first guess (since the cost of capital is 12%).

The reason I chose 20% as the second guess is simply because the choices of answers in the question go up to 19%. You could equally have choose 19% as your second guess.

I have not assumed anything at all. Any two guesses will do – the answer is only every approximate, which is they the questions asked to the nearest %.

If you have not already done so, then I do suggest that you watch the free lectures on this. Our lectures are a complete course for Paper F2 and cover everything you need to be able to pass the exam well.

October 22, 2015 at 5:31 pm #278454thank you sir i have studied f2 from my personal tutor but the classes are over now and i was doing your notes individually so from wherever i get stuck i ask you 🙂

October 23, 2015 at 7:18 am #278495You are welcome 🙂

- AuthorPosts

- You must be logged in to reply to this topic.