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NPV

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › NPV

  • This topic has 3 replies, 3 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 30, 2015 at 8:41 am #286326
    yongwei21
    Member
    • Topics: 7
    • Replies: 4
    • ☆

    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.

    November 30, 2015 at 11:40 am #286389
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    Of 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.

    December 10, 2015 at 7:35 am #290063
    zmmyint
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    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?

    December 10, 2015 at 8:33 am #290094
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    Have 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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    Posts
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