Bedford Onions plc is examining the possibility of purchasing a machine for a new venture. The machine will cost £50,000, have a four-year life and a scrap value of £10,000. An additional investment of £15,000 in working capital will be needed at the outset. This is recoverable at the end of the project. The accountant’s figures for the annual trading accounts are as follows:

Allocated overhead consists of central administrative costs which are incurred with or without this project. The machine will be eligible for a 25 per cent writing-down allowance (on a declining balance). Tax is payable at 30 per cent in the year of profit creation.

For a project of this risk class a minimum return of 14 per cent is considered acceptable.

Assume no inflation.

Required
Calculate the net present value of this investment

Transcribed Image Text:

Sales Labour. Materials Direct overhead Allocated overhead Depreciation Annual profit 4 100,000 (20,000) (10,000) (20,000) (15,000) (10,000) 25,000 Sales Labour. Materials Direct overhead Allocated overhead Depreciation Annual profit 4 100,000 (20,000) (10,000) (20,000) (15,000) (10,000) 25,000

Answer rating: 100% (QA)

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