QUESTION ONE An investor is planning to buy an asset which will cost ksh 8,000,000. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
QUESTION ONE An investor is planning to buy an asset which will cost ksh 8,000,000. The asset has a useful life of 10 years and will have a scrap value of 700,000 at the end of the tenth year. There is a 55% chance that the asset will bring in additional revenue of 15,000,000 per year and a 45% chance that the asset will bring in additional revenue of 5,000,000 per year for eight years and will incur additional costs of 900,000 per year for ten years. The machine will also require additional investment in working capital of 1,000,000 on installation. The tax rate is given as 30%. Assume that depreciation is at 20% per annum on a reducing balance method. The investors required rate of return is given as 10%: Required a) Determine (7Marks) cash flows from b) Determine the NPV of the project and give (8Marks) this your project. comment. QUESTION ONE An investor is planning to buy an asset which will cost ksh 8,000,000. The asset has a useful life of 10 years and will have a scrap value of 700,000 at the end of the tenth year. There is a 55% chance that the asset will bring in additional revenue of 15,000,000 per year and a 45% chance that the asset will bring in additional revenue of 5,000,000 per year for eight years and will incur additional costs of 900,000 per year for ten years. The machine will also require additional investment in working capital of 1,000,000 on installation. The tax rate is given as 30%. Assume that depreciation is at 20% per annum on a reducing balance method. The investors required rate of return is given as 10%: Required a) Determine (7Marks) cash flows from b) Determine the NPV of the project and give (8Marks) this your project. comment.
Expert Answer:
Answer rating: 100% (QA)
present value formula 11rn where rrate of interest nno of years a 10 year PVF 10 CF DEP PBT TAX30 AF... View the full answer
Related Book For
Probability and Statistical Inference
ISBN: 978-0321923271
9th edition
Authors: Robert V. Hogg, Elliot Tanis, Dale Zimmerman
Posted Date:
Students also viewed these economics questions
-
In this mini-case, you will determine overall materiality as well as tolerable misstatement amounts for balance sheet accounts of EarthWear Clothiers, Inc. Most auditing firms use a simple approach...
-
Department Bonus If the Dept is 6007, enter 900, if it is 4305, enter 600, if it is 4312, enter 350, otherwise enter 200. Copy the function down for the employees. Calculate the total Department...
-
Purchased a piece of Striploin weighing 12.5 Lb., Trim and fat was 30% of the weight. Determine the Yield % for the trimmed Tenderloin and the fat. Trim/fat = 30%, Portion Size is 9 oz.sirloin,...
-
Owner Shan Lo is considering franchising her Happy Wok restaurant concept. She believes people will pay $5 for a large bowl of noodles. Variable costs are $1.50 a bowl. Lo estimates monthly fixed...
-
Describe the middle-of-the-road manager, authority-compliance manager, country club manager, team manager, and impoverished manager.
-
To obtain evidence on the authorization assertion, an auditor should trace corporate stock issuances and treasury stock transactions to the a. Numbered stock certificates. b. Articles of...
-
Under the assumptions of the linear model, the values of y|x follow a _______________ . In Exercises 7 and 8, fill in each blank with the appropriate word or phrase.
-
Maple Leaf Production manufactures truck tires. The following information is available for the last operating period. Maple Leaf produced and sold 92,000 tires for $40 each. Budgeted production was...
-
Futura Company purchases the 68,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $11.60 per unit. Due to a reduction in output, the company now has...
-
December 31, 2014, trial balances for Pledge Company and its subsidiary Stom Company follow: Pledge Company purchased 72,000 shares of Stom Company's common stock on January 1, 2011, for $300,000. On...
-
What are political parties?
-
Does time-variation in beta explain the weak evidence for the CAPM? Discuss empirical results of studies testing conditional CAPMs.
-
Explain the materiality and conservatism constraints of financial accounting.
-
Elbegone Partnership had the following assets when one of its partners sold her interest in the partnership: Asa result of the sale of one of the partnership interests, Elbegone is required to make a...
-
Discuss key estimates in accounting for pension and other postretirement benefits and how these estimates affect net income and total liabilities.
-
How does pension accounting serve to smooth pension expense? Under what circumstances will this relatively smooth expense not reflect the underlying economics?
-
2. Use the binomial theorem to expand (3x-2y)*. Write each term in simplest form. (2 marks) 3. One term of an expansion for (m + y)10 is 20160x16. Use the general term formula, n C = (x)"* (y)*, to...
-
Give an example of transitory income. What effect does this income have on the marginal propensity to consume?
-
Let X equal the larger outcome when a pair of fair four-sided dice is rolled. The pmf of X is Find the mean, variance, and standard deviation of X. f(x) = 2-1 6* 16-, x=1.2.3.4.
-
A life insurance company issues standard, preferred, and ultra-preferred policies. Of the companys policyholders of a certain age, 60% have standard policies and a probability of 0.01 of dying in the...
-
An environmental survey contained a question asking what respondents thought was the major cause of air pollution in this country, giving the choices automobiles, factories, and incinerators. Two...
-
What is reaction coordinate? What is its significance in chemical reaction?
-
Show that for steady state flow process, \(\Delta H=Q-W_{S}\).
-
An ideal gas \(\left(C_{P}=5, C_{V}=3 ight)\) is changed from \(1 \mathrm{~atm}\) and \(22.4 \mathrm{~m}^{3}\) to \(10 \mathrm{~atm}\) and 2.24 \(\mathrm{m}^{3}\) by the reversible process of heating...
Study smarter with the SolutionInn App