Breaking Limits Company Limited has carried out some research that shows that the business could provide...
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Breaking Limits Company Limited has carried out some research that shows that the business could provide a standard service that it has recently developed. Provision of the service would require investment in a machine that would cost GHS100, 000, payable immediately. Sales of the service would take place throughout the next five years. At the end of that time, it is estimated that the machine could be sold for GHS20,000 (Salvage Value). Inflows and outflows from sales of the service would be expected to be as follows: Immediately Cost of machine 1 years' time Operating profit before depreciation 2 years' time Operating profit before depreciation 3 years' time Operating profit before depreciation 4 years' time Operating profit before depreciation 5 years' time Operating profit before depreciation 5 years' time Disposal proceeds from the machine Total GHS 000 GHS 000 (100) 20 40 60 60 20 20 220 year, Given that, Breaking Limits Company could invest its money at a rate of 20 per cent a a. What is the payback period for the investment? b. What is the Net present value of the expected inflows at the end of the period? c. Based on your answer in (B) above, what will be your advice to the company? Breaking Limits Company Limited has carried out some research that shows that the business could provide a standard service that it has recently developed. Provision of the service would require investment in a machine that would cost GHS100, 000, payable immediately. Sales of the service would take place throughout the next five years. At the end of that time, it is estimated that the machine could be sold for GHS20,000 (Salvage Value). Inflows and outflows from sales of the service would be expected to be as follows: Immediately Cost of machine 1 years' time Operating profit before depreciation 2 years' time Operating profit before depreciation 3 years' time Operating profit before depreciation 4 years' time Operating profit before depreciation 5 years' time Operating profit before depreciation 5 years' time Disposal proceeds from the machine Total GHS 000 GHS 000 (100) 20 40 60 60 20 20 220 year, Given that, Breaking Limits Company could invest its money at a rate of 20 per cent a a. What is the payback period for the investment? b. What is the Net present value of the expected inflows at the end of the period? c. Based on your answer in (B) above, what will be your advice to the company?
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a To calculate the payback period we need to determine how long it takes for the cumulative cash inflows to equal or exceed the initial investment Let... View the full answer
Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
Posted Date:
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