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IRR

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

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January 21, 2017 at 3:39 pm #368729
geokcheng
Member
- Topics: 17
- Replies: 12
Sir,
Can show me how to calculate question 1(b) section b mock exam? Undestand that IRR is try an error, but i couldn’t get the same answer.
YR
0 Cost (300,000)
1-5 inflow 90,000
5 Scrap value 20,000
Dis. factor 17%
Year 1-5 is 3.199
Year 5 – 0.456
PV:
(300,000)
287,910
9,120
______
(2970)
Dis. factor 16% for:
Year 1-5 is 3.274
year 5 scarp value is 0.476
PV
(300,000)
294,660
9520
______
4180
IRR = 16%+(4180/(4180+2970)*(17-16)% =16.58%
But the answer is 21. Please correct me which part went wrong.
January 21, 2017 at 4:06 pm #368736
John Moffat
Keymaster
- Topics: 57
- Replies: 54500
But the question does not ask you for the IRR !!!!
It asks for the Accounting Rate of Return, which is the average profit per year after depreciation (34,000) as a % of the average investment (160,000).
January 21, 2017 at 5:11 pm #368756
geokcheng
Member
- Topics: 17
- Replies: 12
sir,
Is this ARR is included in F2 syllabus? I can’t find this topic. Can you explain how to get 34,000 & 160,000?
January 22, 2017 at 7:48 am #368825
John Moffat
Keymaster
- Topics: 57
- Replies: 54500
The profit before depreciation = 90,000 per year
The depreciation = (300,000 – 20,000)/5 = 56,000 per year.
So the profit = 90,000 – 56,000 = 34,000
The average investment = (300,000 + 20,000) / 2 = 160,000
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