Calculate the Accounting Rate of Return (ARR) of the investment Internal rate of return (IRR)                                    The annual incremental profits/ (losses) relating to the investment are estimated as follows:                                                             Years CF’s        (000) Year 0 -175,000 Year 1 K11,000 Year 2 K3,000 Year 3 K34,000 Year 4 K47,000 Year 5 K8,000 Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12%   Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 D.f 1.00 0.893 0.797 0.712 0.636 0.567

Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
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Problem 22E
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Calculate the Accounting Rate of Return (ARR) of the investment Internal rate of return (IRR)                                    The annual incremental profits/ (losses) relating to the investment are estimated as follows:  

                                                         

Years

CF’s

       (000)

Year 0

-175,000

Year 1

K11,000

Year 2

K3,000

Year 3

K34,000

Year 4

K47,000

Year 5

K8,000

Investment at the start of the project would be K175, 000,000.the investment sum assuming nil disposal value after five years, would be written off using the equal instalment method. The depreciation has been included in the profit estimates above, which should be assumed to arise at each year end. Assume the cost of Capital is 12%

 

Year 0

Year 1

Year 2

Year 3

Year 4

Year 5

D.f

1.00

0.893

0.797

0.712

0.636

0.567

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