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
   1. Investment appraisal
   2. Investment appraisal issues
   3. Investment appraisal techniques
   4. Discounted cash flow (DCF) & Net present value (NPV)
   5. The time value of money
   6. Residual values
   7. Investment appraisal - qualitative factors
6. 3.2 Investment appraisal - questions
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

Residual values

The residual value of any investment is the scrap value of any plant etc. at the end of its life. This does not reduce the cost of a project, it simply gives another cash inflow in the year when the item is sold.

What effect does a residual value have on our tests?

• Payback period - none at all, since the money comes after the payback point.
• Average rate of return - will increase the 'gain' and hence the 'net gain'. The return will increase if the number of years is not adjusted.
• NPV - little change, unless the residual value is very high. Discount factor will be low since the money only comes in after the project is over.