KSB wants to run a new programme. Estimated fees to be paid by a student is GH¢7,500. Fixed cost for the programme is expected to GH¢135,000 per annum while variable cost per student is estimate at GH¢3,000.

You are required to calculate and advise KSB on:

• the number of students to enroll to break even
• the enrolment fees value at break-even point
• the margin of safety, if the expected enrolment is 90 students
• If the taxation rate is 20% how many students need to enroll on the programme to make a profit after tax of GH¢45,000 p.a.?       

KSB is evaluating two programmes. Both programmes will require an initial investment of GH¢1,200,000. Funds available to KSB can support only one of the two programmes. The expected cash flows of the two programmes are as follows:

PERIOD	PHD	SHORT CODE
	GHC	GHC
1	160	480
2	220	480
3	300	120
4	440	220
5	620	120
6	300	120
7	220	420

           

The required rate of return/opportunity cost of capital of KSB is 20 per cent.

The company will invest GH¢40,000 in working capital in year 3.

Required

• As a programme consultant hired by the school, you are supposed to appraise the two programmes and make recommendations (your appraisal should be in a report form) based on the following:
• Payback Method
• Net Present Value (NPV) Method
• Comparing the two appraisal methods above, which one will you recommend to KSB? Justify fully your choice in the report.

Answer rating: 100% (QA)

Answer 1 a Sales 7500 b Contribution margin75003000 4500 c... View the full answer