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Project appraisal methods

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Project appraisal methods

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • November 21, 2021 at 1:41 pm #641247
    suleymanabuzerli
    Member
    • Topics: 84
    • Replies: 32
    • ☆☆

    An investment project has the following discounted cash flows ($’000):
    Year Discount rate
    0% 10% 20%
    0 (90) (90) (90)
    1 30-27.3-25.0
    2 30-24.8-29.8
    3 30-22.5-17.4
    4 30-20.5-14.5
    30-5.1 -(12.3)
    The required rate of return on investment is 10% per year.
    What is the discounted payback period of the investment project?
    ? Less than 3.0 years
    ? 3.0 years
    ? Between 3.0 years and 4.0 years
    ? More than 4.0 years

    Revision Kit 12b.19 question..

    please explain solution

    November 21, 2021 at 3:31 pm #641259
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51573
    • ☆☆☆☆☆

    Given that the required return is 10%, it is only the 10% column in the question that is relevant.

    We need the number of years it takes to get back the original 90.

    After three years they have received a total of 74.6.
    After four years they have received a total of 95.1.

    Therefore they will have received 90 somewhere between 3 and 4 years.

    I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.

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