t0m0h2
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Appendix A: Forecasted investment appraisal data for the car club proposal

Forecast initial cost: £8m
Expected returns |Cash Inflow £M|Cash outflow £m
1 |3.0 |1.5
2 |5.7 |2.0
3 |6.5 |2.2
4 |7.4 |3.9

Question 1
Using the data in Appendix A, calculate the average rate of return (ARR) for the car
club proposal and analyse your results in relation to the Directors’ expectations.
(10 marks)

This is a question we have been given and all of us have different answers as we arent sure how to work it out.

Can anyone please help?
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jaydemikaela
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Work out the net cash flow

3 + 5.7 + 6.5 + 7.4 - 1.5 - 2.0 - 2.2 - 3.9 = 13

Then minus the investment cost

13 - 8 = 5

Then, to find average cash flow, divide by the number of years

5/4 = 1.25

Then divide by the cost of investment and times by 100 to get the percentage

1.25/8 x 100 = 15.625%
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Sakura-Chan
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The formula is average profit/investment x 100.

So you take inflow (money in) minus outflow (money out) = profit.

Add up the profit for each year, take off the initial investment, divide by the number of years = average profit.
Average profit divided by investment x 100 = ARR as a percentage.

Also,when I was doing BUSS3, we always got told to have a 'Year 0' with the initial investment, just to make sure that in the exam we didn't forget to take it off
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mrinvinicble
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Has anyone done the ratious question on Coffee Delight paper, if yes, please can you explain how to do it
Thanks
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sarahmulk
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For me I don't know what to include in my ARR, we have several investments being made and they are under patent, land, building, machinery+equipment and working capital. Does anyone know if I'm supposed to include all of them? And do you take off the depreciation off the average operating profit figure? I don't know where to go with this work; and also everyone I talk to has different answers! This is university level cw btw but the same theory really
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Kikikiwikiki
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Best explained answer I’ve seen
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