CellTell Limited, a giant player in the telecommunication industry mostly operates in the North Africa telecommunication industry and intends on setting up operations in Namibia . In the first half of 2020, it paid consulting fees amounting N$ 300 000 to a consulting firm to conduct a feasibility study of its plan in the Namibian market. In the second half of 2020, it also paid licensing application fees of N$ 50 000 to the communications Regulatory Authority of Namibia (CRAN), the Namibia communications regulator to be granted a license to operate, which was subsquently granted for operations to start in 2021. As per business plan, the company will require an amount of N$ 7 million immediately for specialized equipment required to set up its telecommunication infrastructure in Namibia during the initial 3 years of phase 1 of the project.

 

Projected profit before tax (PBT) to be granted from phase 1:

	2021	2022	2023
project profit before tax (N$)	3 million	2.8 million	3.2 milllion

Depreciation on the specialized equipment in profit before tax is calculated

 on the straight line method based on the duration of the project (i.e., 3 years) and the Namibia Revenue Agency (NamRA) grants wear and tear tax allowance using straight line method (i.e., 33.3% per annum) . Tax payments are half payable in the year incrred and the balance in the following year. The project will require working capital of N$ 4.5 million on inception. The corporation tax is 32% and the cost of capital is 12 %

 

Required

Advise CellTel whether to invest in the Namibian Opportunity or not based on Net Present Value (NPV) calculations.

Answer rating: 100% (QA)

To determine whether CellTell should invest in the Namibian opportunity we need to calculate the net present value NPV of the project The NPV is calcu... View the full answer