Charlie Charlie Ltd is considering investing in equipment to make a new product. The machine would cost £500,000 and would be sold after 6 years for an estimated £200,000. The production would generate net positive cashflows as follows:YearNet operating cashflow (£)180,000280,000390,0004100,0005110,0006120,000 The company has a cost of finance of approximately 10% pa.Calculate:The Payback Period (assume the operating cashflows are spread evenly over each year)The Accounting Rate of Return based on average investmentThe NPV (assume here that operating cashflows occur at the end of each year)The IRR (try 15% for the other rate)

Calculation of Payback Period Year Annual Cash Flow Cumulative Cash Flow 1…

Answered: The Payback Period (assume the…

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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Charlie

Charlie Ltd is considering investing in equipment to make a new product. The machine would cost £500,000 and would be sold after 6 years for an estimated £200,000. The production would generate net positive cashflows as follows:

Year	Net operating cashflow (£)
1	80,000
2	80,000
3	90,000
4	100,000
5	110,000
6	120,000

The company has a cost of finance of approximately 10% pa.

Calculate:

The Payback Period (assume the operating cashflows are spread evenly over each year)
The Accounting Rate of Return based on average investment
The NPV (assume here that operating cashflows occur at the end of each year)
The IRR (try 15% for the other rate)

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