I really need help on this hw assignment. I got the Payback Period and Internal
ID: 2476177 • Letter: I
Question
I really need help on this hw assignment. I got the Payback Period and Internal Rate of Return.
But I can't figure out the Accounting rate of return or the Net Present Value. I tried the formula using NPV.
Data Section Cost of investment (initial outlay) Estimated life of investment Estimated salvage value Estimated annual net cash inflow Required rate of return $500,000 10 years $25,000 $110,000 20.00% Payback period Accounting (average) rate of return Net present value Internal rate of return 4.55 years 17.95% Scratch Pad Cash flow table needed for NPV & IRR calculations IRR Combined NPV Salvage Value Year Cash Flow 110000 110000 110000 110000 110000 110000 110000 110000 110000 0 0 0 0 500000 110000 110000 110000 110000 110000 110000 110000 110000 110000 1·100,000 Average Annual Cash Flows 110,000Explanation / Answer
AVERAGE Accounting rate of return= Profit after Depreciation /Original Investment *100
=$85,000 / $500,000*100
=17%
Profit after Depreciation Calculation
Particulars:::::::::::::::::::::::::::::::::::::::::::Amount
Cash inflow:::::::::::::::::::::::::::::::::::::::$110,000
Less:
Depreciation=500,000 /10:::::::::::::$50,000
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Profit after Depreciation:::::::::::::::::$60,000
ADD:
Scrap value:::::::::::::::::::::::::::::::::::$25,000
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CFAT::::::::::::::::::::::::::::::::::::::::::::::$85,000
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Net Present value:
Particulars:::::::::::::::::::::::::years:::::::::::Cash inflow:::::::::20%factor::::::::::::::::::Present cash inflow
Annual Cash inflow::::::::::::1-10::::::::::::::$110,000:::::::::::4.19247:::::::::::::::::::::::::::$461,171.70
Less:
Initial Investment:::::::::::::Now::::::::::::::::$500000:::::::::::::1.00000::::::::::::::::::::::::::$500,000.00
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Net Present Value:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::($38,828.30)
NPV have negative value
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