Answer:
1)Accounting rate of return (ARR) = (Annual net income after depreciation & tax / Initial investment) * 100. |
= (28,275 / 377000) * 100 |
= 0.075* 100 |
= 7.5 % |
First let us calculate annual net cash flow:- |
Depreciation charged = ( 377000 - 41000 ) / 7 = $ 48,000 |
Annual cashflow = 28275 + 48000 = $ 76,275 |
2) Payback period = Initial investment / Annual net cash flow = 377000 / 76275 = 4.94 years |
3) NPV= Present value of all cash inflows - Present value of all cash outflows |
76275 * PVIFA ( 11% , 7 ) + 41000 * PVIF ( 11 % , 7 ) - 377000 |
76275 * 4.7122 + 41000 * 0.4816 - 377000 |
359423+ 19746 - 377000 = $ 2169 ( NPV is positive ) |
4 ) NPV= Present value of all cash inflows - Present value of all cash outflows |
76275 * PVIFA ( 14 % , 7 ) + 41000 * PVIF ( 14 % , 7 ) - 377000 |
76275 * 4.2883 + 41000 * 0.3996 - 377000 |
327090+ 16384 - 377000 = ($ 33526 ) |
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