Tashkent NON $($TNON$)$ is a new business that is meant to be set up on $1$ January $2024.$ The founders believe that its location neat Chilanzor Metro will be accessible to MDIST students and nearby residents. $6$ Year projections for the business are provided as follows;

a$.$ The project will be financed by borrowing $$9,000$ at $12\%$ interest per annum.

b$.$ The required rate of return for the project is $10\%.$

c$.$ The new equipment costs $ $8,000$ and is usable for $6$ years.

d$.$ $$500$ has been already spent on confirming the legal feasibility of the business idea.

e$.$ Direct costs of material and labour will amount to $50\%$ of revenue each year.

f$.$ Working capital requirement in total have been estimated as follows; $$800$ at start increasing at the rate of $$50$ per year till start of year $6.$

g$.$ All $$1050$ working capital will be released $/$recovered at the end of project.

h$.$ TNON is expected to generate cash revenue of $$5,000$ in the first year and increasing at the rate $20\%$ each year on previous year from the second year onwards till year $6.$

i$.$ TNON will have to incur fixed cost of $$900$ in the first year and increasing at the rate of $$150$ per year from the second year onwards till year $6$ directly as a result of this project.

j$.$ The equipment can be sold at $ $300$ at the end of its useful life.

k$.$ Annual tax payment for this project is expected to be $$200$ for first year and growing at a rate of $$75$ per each year due to higher profits and $/$ or tax rate.

ii$)$ Calculate $($with detailed workings$)$;

a$)$ Accounting Rate of Return $($on initial investment$)$

b$)$ Payback Period

c$)$ Discounted payback period.

d$)$ Net Present Value

e$)$ Profitability Index

f$)$ Internal Rate of Return $($IRR$).($Use $10\%$ & $20\%$ to approximate IRR$)$

Year $123456$

PV $10\%0\mathrm{.}90910\mathrm{.}82640\mathrm{.}75130\mathrm{.}68300\mathrm{.}62090\mathrm{.}5645$

PV $20\%0\mathrm{.}83330\mathrm{.}69440\mathrm{.}57870\mathrm{.}48230\mathrm{.}40190\mathrm{.}3349$

Answer rating: 100% (QA)

To calculate the accounting rate of return ARR payback period discounted payback period net present value NPV profitability index and internal rate of return IRR we need to analyze the cash flows and ... View the full answer