Rate of return — OpenTuition Forums

AAAli Ansari8y ago

Hi Mr john, I was going through the open tuition mock exam for F2 and in section B Question 1 , they ask to find the accounting rate of return and i tried to find it but i wasn't able to , secondly, why do we have to subtract incremental costs from the cash flows each year and then find the net present value. and will i be tested on any other types of relevant costs in in non theory questions? my exam is in 4 days i would be thankful if you help :)

John MoffatTutor8y ago#1

The accounting rate of return is the average annual profit as a % of the average capital employed. When calculating NPV's we look at all future incremental cash flows- the net of cash receipts and cash payments. More on relevant costs is not examined until Paper F5.

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