Hi Sir, please help me to answer the question below.
Initial cost $300,000
expected life 5 years
estimated scrap value $20,000
addition revenue
from project per year $120,000
incremental costs $30,000/year
cost of capital 10%
A.What is the Net Present Value?
B. Accounting Rate of Return?
I just don't understand how to calculate the npv while there are no cashflow provided in question.
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NPV
10y ago#1Of course there are cash flows provided!
There is an outflow at time 0 - the cost of 300,000
There is a net inflow of 120,000 - 30,000 = 90,000 per year from years 1 to 5
There is an inflow at time 5 of the scrap value of 20,000
There flows are discounted at 10% using the annuity factor for the annual net inflow, and the normal discount factor at 10% for the scrap proceeds.
Hi Sir,
please help me to answer for this question
Initial cost $300,000
expected life 5 years
estimated scrap value $20,000
addition revenue from project per year $120,000
incremental costs $30,000/year
cost of capital 10%
I don't know how to calculate to Accounting Rate of Return?
10y ago#3Have you watched our free lectures? They are a complete course for paper F2 and cover everything you need to be able to pass the exam well.
The average profit per year = 90,000 less depreciation of (300,000 - 20,000) / 5 per year
The average investment is (300,000 + 20,000) / 2
The ARR = average profit p.a. as a % of the average investment.
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