Accounts and finance

Table of Contents

1. Topic pack - Accounts and finance - introduction
2. 3.1 Sources of finance - notes
3. 3.1 Sources of finance - questions
4. 3.2 Investment appraisal - notes
5. Investment appraisal
6. 3.2 Investment appraisal - questions
   1. Payback & ARR - self-test questions
   2. Discounted cash flow - self-test questions
   3. Inv. appraisal techniques - short answer questions
   4. Quantitative factors - numerical questions (1)
   5. Quantitative factors - numerical questions (2)
   6. Investment appraisal - quantitative factors - numerical questions 2
7. 3.3 Working capital - notes
8. 3.3 Working capital - questions
9. 3.4 Budgeting - notes (HL only)
10. 3.4 Budgeting - questions
11. 3.5 Final accounts - notes
12. 3.5 Final accounts - questions
13. 3.5 Final accounts - simulations and activities
14. 3.6 Ratio analysis - notes
15. 3.6 Ratio analysis - questions
16. 3.6 Ratio analysis - simulations and activities
17. Printable version

Payback & ARR - self-test questions

Why not have a go at the following examples to see how well you have understood the calculation of payback and ARR?

A firm has to choose between two possible projects and the details of each project are as follows:

1	Payback period - Project A What is the payback period of project A?

2	Payback period - Project B What is the payback period of project B?

3	Payback period - Project C What is the payback period of project C?

4	ARR - Project A What is the average rate of return (ARR) of project A?

5	ARR - Project B What is the average rate of return (ARR) of project B?

6	ARR - Project C What is the average rate of return (ARR) of project C?

7	Which project? Which project would you recommend to the board to accept and why? The best project on these criteria appears to be project B. It has the lowest payback period (just) of 2 years and 8 months and also has the best ARR figure at 22%.