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Hi, do you mind explaining the first MTQ in the revision mock paper relating to interest? there’s no solution in the review. thank you
You will have to be more specific!
Which mock paper are you asking about?
If it is the one that we have on this website, then the MCQ’s are selected at random from a large bank of questions, so I do not not know which you got first – you will need to give some information about the question.
Sorry for not the being specific ! Here’s the question :
Abel ltd is considering a new investment with the following information :Initialcost – 300000
Expected life – 5 years
Estimated scrap value – 20000
additional revenue per year – 120000
Incremental cost per year – 30000
Cost of capital- 10%A) find the NPV of the project
The net cash inflow is 120,000 – 30,000 = 90,000 per year for 5 years, so discount this using the 5 year annuity discount factor at 10%.
In addition there is a receipt of 20,000 in 5 year time, so discount this using the ordinary present value factor for 5 years at 10%.
Add the two together, and subtract the initial cost of $300,000.
Have you watched my free lectures on investment appraisal? The lectures are a complete free course for Paper F2 and cover everything needed to be able to pass the exam well.
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