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initial cost 300,000/
life – 5 years
addition revenue per year – 120,000/
additional cost per year – 30,000/
scrap value – 20,000/
cost of capital – 10%I got NPV as 53,720/ and IRR as 17%
but I am told answer is NPV – 53610 and IRR – 21
Please assist me. F2 exam is in a few days. I have watched all your lectures, revision and tests.
For the NPV, the difference is rounding – your answer is OK and rounding is not a problem in the real exam.
For IRR, the question does not ask for the IRR – it asks for the accounting rate of return.
The average profit is (120,000 – 30,000) – depreciation of (300,000 – 20,000)/5 per year = 34,000.
The average investment = (300,000 + 20,000) / 2 = 160,000.So the ARR = 34,000/160,000 = 21.25%
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