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I’ve been trying to work out this problem for some time . initial investment – $300,000
Revenue- $120,000 per year; incremental cost- $30,000 per year;
Scrap value- $20,000; duration: 5 years. Cost of capital 10 per centA). What is the NPV?
b). What is the payback period?
C) what is the ARR of the project?For part A, you discount the scrap value using the ordinary 5 year discount factor at 10%, and discount the net cash inflow of 120,000 – 30,000 using the annuity discount factor for 5 years at 10%.
For part B, the ARR is the average annual profit (i.e. the net cash inflow less depreciation) expressed as a percentage of the average value of the investment.
For part C, the payback period is the number of years it takes, in cash terms, to get back the initial investment of 300,000 based on the net cash inflow each year of 90,000.
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