If I am given constant cash flows of R 1 200 000 per annum (excluding residual value) and a Residual value of R800 000. Initial investment of R4 900 000. And the deprecation uses a straight line method. Project life is 5 years. Cost of project risk is 18%.

1. How do I calculate the ARR, Does the Residual value affect the cash flow calculation on the last year? I see some calculations add the Residual value on the last year of the cashflows. Please clarify.

2. The second part of the question is to calculate the NPV, Does the Residual value have an effect in the NPV calculation or it has no effect?

3. The last part for my understanding is, if I were to calculate the payback period, how do I factor in the residual value.

The residual value us my main problem in these calculations, please assist.