Module 5 - Capital Investment Appraisal

Question 1

Equation for internal rate of return

Answer 1

IRR = A+((B-A) x (Na / Na - Nb))

Question 2

Accounting rate of return

Answer 2

ARR = (Average annual profits / Average Capital Investment) x 100

Question 3

Average annual profits

Answer 3

AAP = ((annual cash flow generated from the investment - depreciation) / number of years investment)

Question 4

Average capital investment

Answer 4

1/2 (investment + residual value)

Or (investment + residual value) / 2