Question

Hello, this is the up-dated accounting question that I have.

Images are attached. If you need more information, let me know. Thanks in advance.

Answer 1

Answer

As u mentioned that Working Capital is for NPV calculation only so I am not taking it in any other calculation.

1.

Average Net Income = $66,000

Average Investment = (Opening + Closing) / 2

= {860,000 + 60,000} / 2

Average Investment = $460,000

ARR = Average Income / Average Investment

= $66,000 / 460,000

ARR = 14.35%

2.

Net Income	66,000.00
Depreciation {(860,000 - 60,000) / 6 Years}	133,333.33
Net Cash Inflow	199,333.33

3.

I am assuming that u need Undiscounted Payback period but if u need Discounted, plz let me know.

Payback Period = Initial Investment / Annual Cash Inflow

= $860,000 / 199,333.33

Payback Period = 4.31 Years

4.

NPV
	Year	Cash Flow	Discounting Factor	Present Value
Initial Investment	0	(860,000.00)	1.00	(860,000.00)
Annual Inflow	1 to 6 Years	199,333.33	4.230538	843,287.23
Working Capital	0	(20,000.00)	1.00	(20,000.00)
Working Capital	6	20,000.00	0.534641	10,692.82
Salvage Value	6	60,000.00	0.534641	32,078.45
NPV				6,058.49

5.

Cash Flows per year
Year	0	1	2	3	4	5	6
	(860,000.00)	199,333.33	199,333.33	199,333.33	199,333.33	199,333.33	199,333.33
	(20,000.00)						20,000.00
							60,000.00
Total	(880,000.00)	199,333.33	199,333.33	199,333.33	199,333.33	199,333.33	279,333.33

IRR

Dear Student, if u have any query, plz feel free to reach me.