Pinson&. Co. are considering buying a mobile drilling rig to expand the range of services they provide for the water, gas and oil industries. The rig would cost GH 620.000 and last for four at the end of which it would be sold for GHc20.000. The estimated profits for each at the four years are shown below. The company uses the straight-line method of calculating depreciation. Its latest set of accounts showed its return on capital employed to be 11.1 %. Year Profit (loss) 1 (50,000) 2 50,000 3 150,000 4 50,000 Required: 1. Calculate the accounting rate of return (using the initial investment). 2. Calculate the payback period. 3. Calculate the net present value if Finson & Co. cost of capital is 10.0%.
Pinson&. Co. are considering buying a mobile drilling rig to expand the range of services they provide for the water, gas and oil industries. The rig would cost GH 620.000 and last for four at the end of which it would be sold for GHc20.000. The estimated profits for each at the four years are shown below. The company uses the straight-line method of calculating depreciation. Its latest set of accounts showed its return on capital employed to be 11.1 %. Year Profit (loss) 1 (50,000) 2 50,000 3 150,000 4 50,000 Required: 1. Calculate the accounting rate of return (using the initial investment). 2. Calculate the payback period. 3. Calculate the net present value if Finson & Co. cost of capital is 10.0%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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- Pinson&. Co. are considering buying a mobile drilling rig to expand the range of services they provide for the water, gas and oil industries. The rig would cost GH 620.000 and last for four at the end of which it would be sold for GHc20.000. The estimated profits for each at the four years are shown below. The company uses the straight-line method of calculating
depreciation. Its latest set of accounts showed its return on capital employed to be 11.1 %.
|
Year |
|
|
1 |
(50,000) |
|
2 |
50,000 |
|
3 |
150,000 |
|
4 |
50,000 |
Required:
1. Calculate the accounting
2. Calculate the payback period.
3. Calculate the
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