Question 1

Section A

EuroTech Multinationals is evaluating a capital project. The initial investment is $100,000. The expected net cash inflows are:
Year 1: $30,000
Year 2: $40,000
Year 3: $50,000
Year 4: $20,000

Assuming cash flows occur evenly throughout the year, calculate the payback period in years. Enter your answer as a decimal to one decimal place (e.g., 2.5).

Accepted Answer

Calculate cumulative cash flows. Find the year before payback is reached. Divide the remaining amount needed by the cash flow of the next year.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Answering 3 years (rounding up) or calculating 2.4 years by dividing incorrectly.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 3

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