Mr Winter runs a food and beverage business from his home, earning a revenue of RM80,000 every year. Due to the expansion of business's revenue, Mr Winter is considering moving his business into city centre premises. Mr Winter currently advertises his business in the local magazine at a cost of RM3,000 per year and he will continue with this advertising after move to the new premises. After moving to the new premises, Mr Winter will incur RM1,000 in purchasing new kitchen utensils which would be depreciated over 5 years. He expects that moving into new premises will boost his annual revenue by 40%. Mr Winter wishes to evaluate the net present value (NPV) of the proposed move to the new premises.

(i) Explain whether the advertising cost of RM3,000 should be included in the valuation of NPV of new premises. (3 marks)

(ii) Explain whether the depreciation of kitchen utensils should be included in the evaluation of NPV of new premises. (2 marks)

(iii) Explain whether the purchase of kitchen utensils should be included in the evaluation of NPV of new premises. (2 marks)

(iv) Determine the amount of revenue that should be included in the evaluation of NPV of new premises. Explain your answer. (3 marks)

Answer rating: 100% (QA)

i The advertising cost of RM3000 should not be included in the valuation of NPV of the new premises ... View the full answer