Investapp Ltd is considering whether to undertake one of two mutually exclusiveprojects, each of which would require the purchase of an asset costing £50,000,which would have a zero scrap value at the end of four years. Cost of capital isestimated at 10%. The cash flows associated with the two projects are as follows:Project X£Project Y£Initial investment50,00050,000Net cash inflows:40,00030,00020,00020,00030,00020,00030,00030,000Year 1Year 2Year 3Year 4Discount factors @ 10%Rate10%Year1.00010.9090.82630.75140.683Required:For both projects:a) Calculate the (non-discounted) Payback Period.b) Calculate the Accounting Rate of Return (ARR) using initial investmentc) Calculate the Net Present Value (NPV).

Net present value = Present value of cash inflows - present value of cash out flows Payback…

Investapp Ltd is considering whether to undertake one of two mutually exclusive projects, each of which would require the purchase of an asset costing £50,000, which would have a zero scrap value at the end of four years. Cost of capital is estimated at 10%. The cash flows associated with the two projects are as follows: Project X £ Project Y 50,000 50,000 Initial investment Net cash inflows: 40,000 30,000 20,000 20,000 Year 1 Year 2 30,000 20,000 30,000 30,000 Year 3 Year 4 Discount factors @ 10% Rate 10% Year 1.000 1 0.909 2 0.826 3 0.751 4 0.683 Required: For both projects: a) Calculate the (non-discounted) Payback Period. b) Calculate the Accounting Rate of Return (ARR) using initial investment c) Calculate the Net Present Value (NPV).

Investapp Ltd is considering whether to undertake one of two mutually exclusive projects, each of which would require the purchase of an asset costing £50,000, which would have a zero scrap value at the end of four years. Cost of capital is estimated at 10%. The cash flows associated with the two projects are as follows: Project X £ Project Y 50,000 50,000 Initial investment Net cash inflows: 40,000 30,000 20,000 20,000 Year 1 Year 2 30,000 20,000 30,000 30,000 Year 3 Year 4 Discount factors @ 10% Rate 10% Year 1.000 1 0.909 2 0.826 3 0.751 4 0.683 Required: For both projects: a) Calculate the (non-discounted) Payback Period. b) Calculate the Accounting Rate of Return (ARR) using initial investment c) Calculate the Net Present Value (NPV).

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Investapp Ltd is considering whether to undertake one of two mutually exclusive
projects, each of which would require the purchase of an asset costing £50,000,
which would have a zero scrap value at the end of four years. Cost of capital is
estimated at 10%. The cash flows associated with the two projects are as follows:
Project X
£
Project Y
£
Initial investment
50,000
50,000
Net cash inflows:
40,000
30,000
20,000
20,000
30,000
20,000
30,000
30,000
Year 1
Year 2
Year 3
Year 4
Discount factors @ 10%
Rate
10%
Year
1.000
1
0.909
0.826
3
0.751
4
0.683
Required:
For both projects:
a) Calculate the (non-discounted) Payback Period.
b) Calculate the Accounting Rate of Return (ARR) using initial investment
c) Calculate the Net Present Value (NPV).

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