Calculate the accounting rate of return

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1) Project A has an NPV of 200000. The project is financed by borrowing at 7%pa. The cost of capital for Project A is 0.09. This rate is expressed as a decimal, e.g. so that .12 is equal to 12%. The project has 7 year life. Calculate the Annual Equivalent (AE). Your textbook calls this EAV, Equivalent Annual Value. Calculate to the nearest dollar.

2) Calculate the NPV of a project that has an outlay of $300,000 and has annual net cash flows of $50000 per year over 6 years. The project has a salvage value (disposal value) of 10% of its original value. The required rate of return for projects of similar risk is 0.11.

3) Given the following information calculate the Accounting Rate of Return (ARR gross).

Outlay = 100000

Annual Cash Flow = 70000 per year over four years

Life = 4 years

Rate = 0.13, as a decimal

Assume no taxes.

Please provide the manual solutions.

Reference no: EM131623896

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