Other Formulas (ROCE, ARR, IRR, NPV, TAD)

Question 1

ROCE Formula

Answer 1

AVG annual profit before interest and tax/initial capital cost OR AVG capital investment

Question 2

AVG Capital Investment

Answer 2

Initial Investment+Residual value/no. of years

Question 3

IRR Formula

Answer 3

L+NL/NL-NH*(H-L)

Question 4

ARR - Accounting rate of return

Answer 4

Avg net income
(Total cashflow-depreciation/project life)
DIVIDED BY
Avg capital cost
(Initial Investment + scrap value/2)

EASIER:

Profit after tax/capital

Question 5

NPV Proforma

Answer 5

(1) Net Trading Inflows
(2) Tax payable
(3) Investment
(4) Residual/Scrap
(5) Tax relief on tax allowable depreciation
(6) Working Capital Investment

Question 6

NPV Remembers:

Answer 6

Fixed cost usually stays the same
TAD and Tax payable are always the same year

If they give specific inflation and ask to convert to real. Keep the table, and divide by the general inflation rate (COMPOUND it each year), and then use real disc rate

If unti cost per unit per year is different, remember to compound it

Question 7

Sensitivity analysis

Answer 7

NPV/PV of cash flow
For NPv calculate: (IRR-Df)/DF