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

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- November 30, 2015 at 8:41 am #286326
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 #286389Of 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 #290063Hi 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 #290094Have 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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