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NPV

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

  • This topic has 3 replies, 2 voices, and was last updated 11 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 4, 2021 at 6:11 am #630334
    tomasm
    • Topics: 7
    • Replies: 2
    • ☆

    Hi Tutor

    Fit Co owns and runs two local sports club. Last year the largest club made sales of $500,000 but as member numbers are declining they are thinking about refurbishing the gym and upgrading the equipment.

    The expected costs and benefits of the refurbishment are as follows:
    (i) New fitness equipment would cost $450,000 to buy and install. This includes a refurbishment of the gym space.
    (ii) Sales are expected to rise to $550,000 in Year 1 if the changes are made, thereafter increasing by 5% per year. If the changes are not made sales are expected to fall by $40,000 per year.

    This is BPP Q23.7

    Task 2 : Calculate incremental sales : Answer is 50000 + 40000 = 90000
    I understand 550 -500 but where is 40000 from ?

    August 4, 2021 at 8:41 am #630347
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    Last year the sales were $500,000 and if the changes are not made then they will fall by 40,000 and will therefore be $460,000.

    If the changes are made then the sales will be $550,000.

    Therefore the incremental sales due to making the changes will be 550,000 – 460,000 = $90,000

    August 4, 2021 at 11:44 am #630359
    tomasm
    • Topics: 7
    • Replies: 2
    • ☆

    Thank you Sir

    Also the question before that Great southerners
    TASK 1: H3 – why is it only 60000 from disposal ? Why are we not adding the sales of (50000*12)

    August 4, 2021 at 3:54 pm #630384
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    The revenue from the sales of 50,000 a year is effectively included in calculating the contribution each year in row 4.

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