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Sir i did not understand how this mcq was solved.
Question:
40 year project
initial investment 50000
pay back period 20 years
consistent cashflow each year
ROCE is required?Q: a lease agreement has an NPV (26,496) at a rate of 8%. lease involves immediate down payment of 10,000 followed by 4 equal annual payments.
what is the amount of annual payment?For the first question, you know the payback period so you can calculate the equal cash flow each year.
You can calculate the depreciation each year, and therefore you can calculate the annual profit.Then the ROCE should be no problem 🙂
For the second question, the discount factor for the immediate payment (i.e. at time 0) is obviously 1.
For the following 4 payments you can find the annuity factor from the tables provided.Therefore you simply need to divide the NPV given by (1 + the 4 year annuity factor).
i will go through above mcqs once again.
another mcq that I have an issue in. in this question i did not understand how , what and why we did the pre tax calculation at the end of the answer.
Q: Juicy Co is considering investing in a new industrial juicer for use on a new contract. It will cost $150,000 and will last 2 years. Juicy Co pays corporation tax at 30% (as the cash flows occur) and, due to the health benefits of juicing, the machine attracts 100% tax-allowable depreciation immediately. Given a cost of capital of 10%, what is the minimum value of the pre-tax contract revenue receivable in two years which would be required to recover the net cost of the juicer
The question asks what the pre-tax revenue will be. So set up the flows in the same way as in my lectures but let the pre-tax revenue be X (so the after-tax cash flow will be 0.7X. Then discount in the normal way and calculate the value of X that gives an NPV of zero.
Have you watched all of my free lectures? They are a complete free course and cover everything needed to be able to pass Paper FM well.
sir i did not understand how pre tax revenue is calculated and what is the logic. can you explain it again ? sorry for the trouble.
I cannot really add to what I have written before. Let the pre-tax revenue be X and then follow the steps I wrote. You end up with an equation in terms of X and so you can find X by using simple algebra.
Again, have you watched all of our free lectures?
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