UBS Co is considering a new investment which would start immediately and last four years. The...

 

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UBS Co is considering a new investment which would start immediately and last four years. The investment proposal is based on the following assumptions: Asset cost - £160,000 Residual value (RV) - £40,000 25% reducing balance writing-down tax allowances are available on the asset cost. Annual sales - 30,000 units in Years 1 and 2 and will then fall by 5,000 units per year in both Years 3 and 4. Selling price - £4.40 per unit in Year 1 Selling price inflation - 3% per annum from Year 2 onwards. Variable costs - £0.70 per unit in current term. I Incremental fixed costs - £0.30 per unit in current term. Cost price inflation - 5% per annum from Year 1 onwards and applies to variable and incremental fixed costs. The project will require working capital investment equal to 10% of the expected sales revenue. The company only needs to invest more if required and can withdraw the investment if the current investment exceeds the required amount. This investment must be in place at the start of each year. Corporation tax - 30% per annum paid one year in arrears. The cost of capital is 12%. £12,000 has already been spent on initial research. Required The senior managers require the management accountant to build a financial model for this investment. Senior managers will use the model for discussing the suitability of the investment; and in particular, how viable the investment would be if all the inflation rates increased. UBS Co is considering a new investment which would start immediately and last four years. The investment proposal is based on the following assumptions: Asset cost- £160,000 Residual value (RV) - £40,000 25% reducing balance writing-down tax allowances are available on the asset cost. Annual sales - 30,000 units in Years 1 and 2 and will then fall by 5,000 units per year in both Years 3 and 4. Selling price - £4.40 per unit in Year 1 Selling price inflation - 3% per annum from Year 2 onwards. Variable costs - £0.70 per unit in current term. I Incremental fixed costs - £0.30 per unit in current term. Cost price inflation - 5% per annum from Year 1 onwards and applies to variable and incremental fixed costs. The project will require working capital investment equal to 10% of the expected sales revenue. The company only needs to invest more if required and can withdraw the investment if the current investment exceeds the required amount. This investment must be in place at the start of each year. Corporation tax - 30% per annum paid one year in arrears. The cost of capital is 12%. £12,000 has already been spent on initial research. Required The senior managers require the management accountant to build a financial model for this investment. Senior managers will use the model for discussing the suitability of the investment; and in particular, how viable the investment would be if all the inflation rates increased. UBS Co is considering a new investment which would start immediately and last four years. The investment proposal is based on the following assumptions: Asset cost - £160,000 Residual value (RV) - £40,000 25% reducing balance writing-down tax allowances are available on the asset cost. Annual sales - 30,000 units in Years 1 and 2 and will then fall by 5,000 units per year in both Years 3 and 4. Selling price - £4.40 per unit in Year 1 Selling price inflation - 3% per annum from Year 2 onwards. Variable costs - £0.70 per unit in current term. I Incremental fixed costs - £0.30 per unit in current term. Cost price inflation - 5% per annum from Year 1 onwards and applies to variable and incremental fixed costs. The project will require working capital investment equal to 10% of the expected sales revenue. The company only needs to invest more if required and can withdraw the investment if the current investment exceeds the required amount. This investment must be in place at the start of each year. Corporation tax - 30% per annum paid one year in arrears. The cost of capital is 12%. £12,000 has already been spent on initial research. Required The senior managers require the management accountant to build a financial model for this investment. Senior managers will use the model for discussing the suitability of the investment; and in particular, how viable the investment would be if all the inflation rates increased. UBS Co is considering a new investment which would start immediately and last four years. The investment proposal is based on the following assumptions: Asset cost- £160,000 Residual value (RV) - £40,000 25% reducing balance writing-down tax allowances are available on the asset cost. Annual sales - 30,000 units in Years 1 and 2 and will then fall by 5,000 units per year in both Years 3 and 4. Selling price - £4.40 per unit in Year 1 Selling price inflation - 3% per annum from Year 2 onwards. Variable costs - £0.70 per unit in current term. I Incremental fixed costs - £0.30 per unit in current term. Cost price inflation - 5% per annum from Year 1 onwards and applies to variable and incremental fixed costs. The project will require working capital investment equal to 10% of the expected sales revenue. The company only needs to invest more if required and can withdraw the investment if the current investment exceeds the required amount. This investment must be in place at the start of each year. Corporation tax - 30% per annum paid one year in arrears. The cost of capital is 12%. £12,000 has already been spent on initial research. Required The senior managers require the management accountant to build a financial model for this investment. Senior managers will use the model for discussing the suitability of the investment; and in particular, how viable the investment would be if all the inflation rates increased.

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The detailed answer for the above question is provided below Financial Model for UBS Cos Investment Proposal Assumptions Asset cost160000 Residual value40000 Reducing balance depreciation25 per year C... View the full answer