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Do we include scrap value into cumulative cash flow when we calculate payback period?
For accounting rate of return, I am wondering why we need to add scrap value when we calculate average investment? (as to what I watch in the lectures video) How about if gt disposal value? is that means we need to minus it out?
Thanksss you sir
Yes – scrap value is included when calculating the payback period (but only if you are told the scrap value at the end of each year, which is not usual in the exam).
Disposal value and scrap value are different words for the same thing. The average value is half way between the cost and the scrap value, so we add them together and divide by 2.
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