Page 420 - Corporate Finance PDF Final new link

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420 Corporate Finance BRILLIANT’S

 10,00,000-80,000 
`
`
  + 80,000 + 1,00,000 = ` 6,40,000
 2 
92,000
ARR =  100 = 14.38% (Approx.)
6,40,000
Illustration 5.1.6
Determine the average rate of return from the following data of two machine A and B.
Xmo ‘erÝg A VWm B Ho$ {ZåZ{b{IV S>mQ>m go [aQ>Z© Ho$ EdaoO aoQ> H$m {ZYm©aU H$s{OE&

Amount in `
Particulars (am{e ` ‘|)
({ddaU) Machine-A Machine-B
(‘erZ-A) (‘erZ-B)

Original Cost / Am°[aOZb H$m°ñQ> 56,125 56,125
Investment in Net Working Capital / ZoQ> d{Hª$J H¡${nQ>b ‘| {Zdoe 5,000 6,000
Estimated Life in Years / df© ‘| AZw‘m{ZV OrdZ 5 5
Average Income-tax Rate / Am¡gV B§H$‘ Q>¡³g aoQ> 55% 55%

Estimated Salvage Value / AZw‘m{ZV gmëdoO d¡ë¶y 3,000 3,000
Annual Estimated Income after Depreciation and Tax:
S>o{à{eEeZ VWm Q>¡³g Ho$ níMmV² dm{f©H$ AZw‘m{ZV Am¶…
1st year / nhbo df© 3,375 11,375
2nd year / Xÿgao df© 5,375 9,375

3rd year / Vrgao df© 7,375 7,375
4th year / Mm¡Wo df© 9,375 5,375
5th year / nm§Mdo df© 11,375 3,375

36,875 36,875

Depreciation has been charged on Straight Line Basis. / S>o{à{eEeZ ñQ´>oQ> bmBZ AmYma na bJm¶m h¡&

Solution:
Average Profit After Tax
ARR   100
Average Investment

Total PAT
So, Average PAT 
Number of Years