QUESTION ONE An investor is planning to buy an asset which will cost ksh 8,000,000. The...
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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.
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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:
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