Sycamore Limited is considering opening a new cafe. The projected cashflows are shown below. Sycamore Limited...
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Sycamore Limited is considering opening a new cafe. The projected cashflows are shown below. Sycamore Limited has a cost of capital of 6%. Sycamore aims to achieve an accounting rate of return of 15% on their capital investments. Cash flows Initial investment Cash inflows year 1 Cash inflows year 2 Cash inflows year 3 Cash inflows year 4 Cash inflows year 5 Cash inflow from sale of the investment at the end of year 5 Required a) b) ■ I For the new cafe project calculate: Payback (2 marks) The accounting rate of return (3 marks) The net present value (3 marks) £000 (500) 110 110 110 110 110 150 [8 marks] Using the information on cash inflows and the results of your investment appraisal calculations in part a), advise whether the investment in the new cafe should go ahead, providing a justification for your recommendation. Sycamore Limited is considering opening a new cafe. The projected cashflows are shown below. Sycamore Limited has a cost of capital of 6%. Sycamore aims to achieve an accounting rate of return of 15% on their capital investments. Cash flows Initial investment Cash inflows year 1 Cash inflows year 2 Cash inflows year 3 Cash inflows year 4 Cash inflows year 5 Cash inflow from sale of the investment at the end of year 5 Required a) b) ■ I For the new cafe project calculate: Payback (2 marks) The accounting rate of return (3 marks) The net present value (3 marks) £000 (500) 110 110 110 110 110 150 [8 marks] Using the information on cash inflows and the results of your investment appraisal calculations in part a), advise whether the investment in the new cafe should go ahead, providing a justification for your recommendation.
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