Calculating accounting questions on investment appraisel, help needed?

Question

How do i calculate the following -

- Payback period to the nearest month

- Accounting rate of return

- Net present value

Answer 1

Payback period is the time it takes for the total revenue from an Investment to add up to the original cost .. (after taking into account things such as Cost Of Capital and Rate of Inflation) ...

Take, for example, an investment of  ÃƒÂ‚£1000 that yields £10 a month. Plainly you will have to wait 100 months to get £1000. So the crude Payback period is 100 months ..

NPV is the value today of money you will receive in the future. It is 'discounted' by some rate (at least by the rate of inflation).

Again, a crude example. Say RPI is 10%. This means that money in a year will be worth 10% less than receiving it today. Thus, £110 in a year has an NPV of £100.

For Accounting rate of return see link ..

Answer 2

Check your management accounting textbook, if you cannot find it there, your school used the wrong book!