Common Pollution Policy grant of 20 per cent of gross capital expenditure is available, with payment...

 

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Common Pollution Policy grant of 20 per cent of gross capital expenditure is available, with payment in the year following expenditure. A disadvantage of the new equipment is that it will raise production costs by 20 per tonne over its operating life. Current production is 10,000 tonnes per annum. It can be assumed that other unit production costs and product price will be constant over the next four years. Blackwater applies a discount rate of 12 per cent after all taxes to investment projects of this nature. Required a) Calculate the expected net present value of the investment assuming a four-year operating period. Briefly comment on your results. b) Prepare a recommendation to Blackwater's management as to the desirability of the project, considering both financial and non-financial considerations. Q3) Milles Ltd Milles Ltd is a small company manufacturing and supplying wooden duck decoys bought by hunters and by collectors as a home decoration. The company is considering expanding its range and is investigating whether to manufacture and sell a Canada goose decoy. To manufacture this new decoy, Milles will need to invest in a variety of modern equipment to cut and shape the wood. The total cost of this required capital evnenditure is actimated to be 400.000 Common Pollution Policy grant of 20 per cent of gross capital expenditure is available, with payment in the year following expenditure. A disadvantage of the new equipment is that it will raise production costs by 20 per tonne over its operating life. Current production is 10,000 tonnes per annum. It can be assumed that other unit production costs and product price will be constant over the next four years. Blackwater applies a discount rate of 12 per cent after all taxes to investment projects of this nature. Required a) Calculate the expected net present value of the investment assuming a four-year operating period. Briefly comment on your results. b) Prepare a recommendation to Blackwater's management as to the desirability of the project, considering both financial and non-financial considerations. Q3) Milles Ltd Milles Ltd is a small company manufacturing and supplying wooden duck decoys bought by hunters and by collectors as a home decoration. The company is considering expanding its range and is investigating whether to manufacture and sell a Canada goose decoy. To manufacture this new decoy, Milles will need to invest in a variety of modern equipment to cut and shape the wood. The total cost of this required capital evnenditure is actimated to be 400.000

Answer rating: 100% (QA)

a Calculation of Expected Net Present Value NPV To calculate the expected NPV we need to consider the cash flows associated with the investment in the ... View the full answer