How to do Accounting Rate of Return (A.R.R)???
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Hi guys... I'm being thinking the whole night... but i still can't figure out the way to do it... can anyone please teach me pls? I know how it goes about doing a simple ARR but definately not this...
Here's the Information given:
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Proposal to purchase new equipment
MACHINE A
Outright purchase $250,000
Expected useful life 9 years
Expected returns---------Years 1-3----------$50,000 per year
----------------------------------Years 4-6----------$75,000 per year
----------------------------------Years 7-9----------$60,000 per year
Running costs (including labour)
----------------------------------Years 1-6----------$15,000 per year
----------------------------------Years 7-9----------$18,000 per year
MACHINE B
Outright purchase $380,000
Expected useful life 12 years
Expected returns--------Years 1-4----------$70,000 per year
---------------------------------Years 5-8----------$90,000 per year
---------------------------------Years 9-12---------$75,000 per year
Running costs (including labour)
---------------------------------Years 1-4----------$18,000 per year
---------------------------------Years 5-8----------$24,000 per year
---------------------------------Years 9-12---------$30,000 per year
Note: for each proposal there will be an initial training cost of $8,000 for the first year only.
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Here's the question:
Q1.
Using the information provided, calculate the Accounting Rate of Return (A.R.R) % for each of the proposals. [8 Marks]
Q2.
State, with reasons, which of the proposals should be implemented. [4 Marks]
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I would really appreciate your helps!!! -
Hmm, this is not a trick question right?
ARR is simply average net profit/average book value
where average net profit is sum of all annual net profits/ number of years
just rem to include traiing costs in first year
and where average book value is (initial investment + salvage value)/ number of years.... -
Originally posted by laurence82:Hmm, this is not a trick question right?
ARR is simply average net profit/average book value
where average net profit is sum of all annual net profits/ number of years
just rem to include traiing costs in first year
and where average book value is (initial investment + salvage value)/ number of years....
me is impressed
me always had faith in u
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kns...Originally posted by LeftBallBigger:
me is impressed
me always had faith in u -
wait while i go calculate, then we go tally our answers ok?
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Originally posted by laurence82:kns...
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can i like hire you to be my tutor for my business finance?Originally posted by laurence82:Hmm, this is not a trick question right?
ARR is simply average net profit/average book value
where average net profit is sum of all annual net profits/ number of years
just rem to include traiing costs in first year
and where average book value is (initial investment + salvage value)/ number of years....
im totally HOPELESS, all the IRR, ARR NPV
>.and i have a test in a weeks time
i promise to treat you kilkenny k
lol -
I'm only learning till depreciation,will cover that in later years..
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Proposal A
Avg profit = $44,778
Avg book value = $27,778
ARR = 44,778/27,778 = 1.612
Hope i am not wrong.. -
strange, u from SIM?Originally posted by charlene_:can i like hire you to be my tutor for my business finance?
im totally HOPELESS, all the IRR, ARR NPV
>.and i have a test in a weeks time
i promise to treat you kilkenny k
lol -
er yaOriginally posted by laurence82:strange, u from SIM?
hahahhaa
are you from SIM also? -
wahaha, Mervin ur lecturer right? rich chap, sit on few boards of director, drive mini cooper...Originally posted by charlene_:er ya
hahahhaa -
haha YAHOriginally posted by laurence82:wahaha, Mervin ur lecturer right? rich chap, sit on few boards of director, drive mini cooper...
he is a very nice teacher..
you in SIM also?
lol
oh he has 2 sons -
i am in sem 4, taking investment under mok tian soon, we are both lucky, he started teaching bachelor level only last sem, my sem, previous Finance lecturers sux, kena changed, this guy is good....Originally posted by charlene_:haha YAH
he is a very nice teacher..
you in SIM also?
lol
oh he has 2 sons
i hope u arent the sem 3 guy i taught last week for BF....hurhur -
kaoz laurence so smart.
im so jealous -
haha no im not and im not a guy thoughOriginally posted by laurence82:i am in sem 4, taking investment under mok tian soon, we are both lucky, he started teaching bachelor level only last sem, my sem, previous Finance lecturers sux, kena changed, this guy is good....
i hope u arent the sem 3 guy i taught last week for BF....hurhur
oh you are in the 2005 jan intake?
if i managed to pass BF i will be taking investment next semester, IF.
ya mervin is a good teacher, i like his teaching style..
but i just cant grasp the calculations the IRR the time line the ARR the NPV the everything ughh im going to be so dead for the test.. -
yeah, i hope to possess his brains for my test then i would be passing with flying colorsOriginally posted by SMAPLionHeart:kaoz laurence so smart.
im so jealous
lol -
i taught a gal and a guy last week...heheOriginally posted by charlene_:haha no im not and im not a guy though
oh you are in the 2005 jan intake?
if i managed to pass BF i will be taking investment next semester, IF.
ya mervin is a good teacher, i like his teaching style..
but i just cant grasp the calculations the IRR the time line the ARR the NPV the everything ughh im going to be so dead for the test..
anyway, if u noe peeps like jules or lee lee or milan or boon teck, these are my frens
hey isnt ur test two days later? -
alamak, those doesnt come out from my headOriginally posted by charlene_:yeah, i hope to possess his brains for my test then i would be passing with flying colors
lol
turn to ur notes, Topic 4, NPV and Other Investment Criteria - part 1
look at page 8 of that topic...hee hee -
its on the 15th..Originally posted by laurence82:i taught a gal and a guy last week...hehe
anyway, if u noe peeps like jules or lee lee or milan or boon teck, these are my frens
hey isnt ur test two days later?
it is right? mervin told us, er dont scare me haha
how did you happen to teach them? they are your friends? -
haha, but you know how to apply to the question, you understand the concepts and everything but im like lost, i know the formulas but i just cant grasp all the concepts, the interlinked concepts, whenever i try to go about understanding, i would get a big headache and give up which equates to dead for the test lolOriginally posted by laurence82:alamak, those doesnt come out from my head
turn to ur notes, Topic 4, NPV and Other Investment Criteria - part 1
look at page 8 of that topic...hee hee -
oh, becos i refer to the old schedulesOriginally posted by charlene_:its on the 15th..
it is right? mervin told us, er dont scare me haha
how did you happen to teach them? they are your friends?
hehe
no, these two peeps i met last thurday when i go school study for my test, then they ask my fren and me abt finance... -
same for me, i forgot the concepts too...Originally posted by charlene_:haha, but you know how to apply to the question, you understand the concepts and everything but im like lost, i know the formulas but i just cant grasp all the concepts, the interlinked concepts, whenever i try to go about understanding, i would get a big headache and give up which equates to dead for the test lol
why dont u find some frens and study with them? i always find this a big help.... -
ohh, thats nice of you..Originally posted by laurence82:oh, becos i refer to the old schedules
hehe
no, these two peeps i met last thurday when i go school study for my test, then they ask my fren and me abt finance...
mm
do you mind helping me out with my finance?
cause im like really in a very bad state for the test
and i want to do well.. -
i dont have any friends taking finance with me, they all took marketing..Originally posted by laurence82:same for me, i forgot the concepts too...
why dont u find some frens and study with them? i always find this a big help....
and my friends in finance classes are all part time students..
anyway if you mind teaching, its really alright ok?
((:
really ok..