ARR – NBC Institute

BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

This question tests the calculation of Accounting Rate of Return (ARR) for a project based on financial data provided.

Question

ABC Limited is considering investing in a project with the following financial data:

The project life span is FOUR years and has no residual value at the end of the FOUR years. Calculate the ARR.

A. 25%
B. 30%
C. 32%
D. 33%
E. 35%

Answer

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Tags: ARR, Investment decisions, Project Appraisal
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2016

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Question

Julmat Limited, a manufacturing company, has developed a new product that requires an initial capital investment of N5m. At the end of the product’s life, the capital equipment is expected to have a value of N3m. Julmat Limited requires an Annual Rate of Return (ARR) of 20% on its average investment on products of this type. The new product has an expected life of one year before it will be replaced by a more advanced product.

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

The expected direct materials cost for the first batch is N50,000. However, an experience curve is expected to apply to the first 10 batches produced; thereafter, no further savings in material costs per batch are expected.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage	Units Sold	Selling Price per Unit (N)
Introduction	10,000	120
Growth	30,000	100
Maturity	60,000	80
Decline	30,000	50

Required:
a. Prepare calculations to show the total direct labour cost of the product for each of the four stages of the product life cycle. (6 Marks)
b. Assuming that there is no experience curve in relation to the product’s direct material cost, prepare a statement that shows the profitability of the new product for each of the four stages of the product life cycle individually and in total for the product’s life. (5 Marks)
c. Assuming that the direct material experience curve applies, calculate the average direct material cost per batch that must be incurred in order for the company to meet its ARR target over the life cycle of the product. (4 Marks)
d. Discuss the concept of life cycle costing and its effect on product pricing strategies at different stages of the product life cycle. Use the Julmat Limited scenario to illustrate your answer. (5 Marks)

Answer

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Tags: ARR, Financial Performance, Learning Curve, Life Cycle Costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2018

BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions

This question asks candidates to state three advantages and three disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

Question

State THREE advantages and THREE disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

Answer

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Tags: Advantages of ARR, ARR, Disadvantages of ARR, Investment Appraisal
Level: Level 1

Topic: Investment Decisions
Series: NOV 2021

BMF – May 2021 – L1 – SA – Q18 – Investment Decisions

Identifies the statement that is not an advantage of the accounting rate of return (ARR) method of investment appraisal.

Question

Which of the following is NOT an advantage of accounting rate of return (ARR) method of investment appraisal techniques?
A. It is based on accounting profit
B. Measures profitability
C. Simple to calculate
D. Widely understood
E. Focuses on all the years of the project’s life

Answer

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Tags: ARR, Financial management, Investment Appraisal
Level: Level 1

Topic: Investment Decisions
Series: MAY 2021

BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions

State decision rules for ARR and Payback Period and appraise a project using NPV.

Question

(a) State the decision rules of the following investment appraisal techniques:

i. Accounting rate of return (2 Marks)
ii. Payback period (3 Marks)

(b) Fatfelic Ltd is considering a project with the following cash flows:

Year	Cost of Plant (N)	Running Costs (N)	Savings (N)
2020	(1,280,000)
2021		480,000	840,000
2022		550,000	980,000
2023		670,000	1,120,000
2024		890,000	1,400,000

Fatfelic Ltd’s cost of capital is 10%.

Required:
i. Appraise the viability of the proposed project using the Net Present Value (NPV) method of investment appraisal.
ii. State with reasons if the project is worthwhile. (15 Marks)

Answer

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Tags: ARR, Investment Appraisal, NPV, Payback Period
Level: Level 1

Topic: Investment Decisions
Series: NOV 2019

BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

This question tests the calculation of Accounting Rate of Return (ARR) for a project based on financial data provided.

Question

ABC Limited is considering investing in a project with the following financial data:

The project life span is FOUR years and has no residual value at the end of the FOUR years. Calculate the ARR.

A. 25%
B. 30%
C. 32%
D. 33%
E. 35%

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Investment decisions, Project Appraisal
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2016

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

Question

Production
The new product will be manufactured in batches of 1,000 units using a just-in-time production system.

The first batch is expected to incur a direct labour cost of N100,000, but a 75% learning curve is expected until the cumulative production equals 30 batches.

Thereafter, each batch is expected to incur the same direct labour cost as that of the 30th batch.

Other production costs are expected to be N10,000 per batch.

Sales
Sales of the new product are expected as follows for each of the four stages of the product life cycle:

Stage	Units Sold	Selling Price per Unit (N)
Introduction	10,000	120
Growth	30,000	100
Maturity	60,000	80
Decline	30,000	50

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Financial Performance, Learning Curve, Life Cycle Costing
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2018

BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions

This question asks candidates to state three advantages and three disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

Question

State THREE advantages and THREE disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Advantages of ARR, ARR, Disadvantages of ARR, Investment Appraisal
Level: Level 1

Topic: Investment Decisions
Series: NOV 2021

BMF – May 2021 – L1 – SA – Q18 – Investment Decisions

Identifies the statement that is not an advantage of the accounting rate of return (ARR) method of investment appraisal.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Financial management, Investment Appraisal
Level: Level 1

Topic: Investment Decisions
Series: MAY 2021

BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions

State decision rules for ARR and Payback Period and appraise a project using NPV.

Question

(a) State the decision rules of the following investment appraisal techniques:

i. Accounting rate of return (2 Marks)
ii. Payback period (3 Marks)

(b) Fatfelic Ltd is considering a project with the following cash flows:

Year	Cost of Plant (N)	Running Costs (N)	Savings (N)
2020	(1,280,000)
2021		480,000	840,000
2022		550,000	980,000
2023		670,000	1,120,000
2024		890,000	1,400,000

Fatfelic Ltd’s cost of capital is 10%.

Required:
i. Appraise the viability of the proposed project using the Net Present Value (NPV) method of investment appraisal.
ii. State with reasons if the project is worthwhile. (15 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: ARR, Investment Appraisal, NPV, Payback Period
Level: Level 1

Topic: Investment Decisions
Series: NOV 2019

Question Tag: ARR

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BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

This question tests the calculation of Accounting Rate of Return (ARR) for a project based on financial data provided.

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions

This question asks candidates to state three advantages and three disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

BMF – May 2021 – L1 – SA – Q18 – Investment Decisions

Identifies the statement that is not an advantage of the accounting rate of return (ARR) method of investment appraisal.

BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions

State decision rules for ARR and Payback Period and appraise a project using NPV.

BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

This question tests the calculation of Accounting Rate of Return (ARR) for a project based on financial data provided.

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions

This question asks candidates to state three advantages and three disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

BMF – May 2021 – L1 – SA – Q18 – Investment Decisions

Identifies the statement that is not an advantage of the accounting rate of return (ARR) method of investment appraisal.

BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions

State decision rules for ARR and Payback Period and appraise a project using NPV.

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BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

This question tests the calculation of Accounting Rate of Return (ARR) for a project based on financial data provided.

You're reporting an error for "BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets"

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

You're reporting an error for "PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques"

BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions

This question asks candidates to state three advantages and three disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

You're reporting an error for "BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions"

BMF – May 2021 – L1 – SA – Q18 – Investment Decisions

Identifies the statement that is not an advantage of the accounting rate of return (ARR) method of investment appraisal.

You're reporting an error for "BMF – May 2021 – L1 – SA – Q18 – Investment Decisions"

BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions

State decision rules for ARR and Payback Period and appraise a project using NPV.

You're reporting an error for "BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions"

BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets

This question tests the calculation of Accounting Rate of Return (ARR) for a project based on financial data provided.

You're reporting an error for "BMF – May 2016 – L1 – SA – Q9 – Basics of Business Finance and Financial Markets"

PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques

Calculates labour costs, profitability, and material cost based on ARR for Julmat Limited’s new product.

You're reporting an error for "PM – Nov 2018 – L2 – Q4 – Costing Systems and Techniques"

BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions

This question asks candidates to state three advantages and three disadvantages of the Accounting Rate of Return (ARR) method of investment appraisal.

You're reporting an error for "BMF – Nov 2021 – L1 – SB – Q5A – Investment Decisions"

BMF – May 2021 – L1 – SA – Q18 – Investment Decisions

Identifies the statement that is not an advantage of the accounting rate of return (ARR) method of investment appraisal.

You're reporting an error for "BMF – May 2021 – L1 – SA – Q18 – Investment Decisions"

BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions

State decision rules for ARR and Payback Period and appraise a project using NPV.

You're reporting an error for "BMF – Nov 2019 – L1 – SB – Q6 – Investment Decisions"

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