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Lecture 2

# MGAB03H3 Lecture Notes - Lecture 2: Icq, Snowplow, Net Present Value

Department
Financial Accounting
Course Code
MGAB03H3
Professor
G.Quan Fun
Lecture
2

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MANAGEMENT
ACCOUNTING
Chapter 12
IN-CLASS
QUESTIONS (ICQs)
SOLUTION

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ICQ #1
12.26 NPV, IRR, ARR and Payback Methods - Amaro Clinic
A. The net present value is (\$5,000 x 5.2161) - 20,000 = \$6,080
B. The factor for the internal rate of return must be
20,000 = \$5,000*Factor
Factor = 4.0
From the PVFA tables for 10 year, it would be just over 20% (PVFA = 4.192)
Using Excel’s IRR function, the rate is 21.4%
C. Assuming straight-line amortization, the earnings will be
\$5,000 - \$20,000/10 = \$3,000
The accounting rate of return is \$3,000/20,000 = 15%
D. The payback period is \$20,000/\$5,000 = 4 years

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ICQ #2
12.27 NPV, ARR and Payback Methods – Moosehead Community Centre
A sample spreadsheet showing the calculations for this problem is available on the Instructors
web site for the textbook (available at www.wiley.com/canada/eldenburg).
A.