31. Flyers plc operates public transport services in major cities in the United Kingdom (UK). The company uses the accounting rate of return (ARR) and payback methods to support investment decision making. You are a Senior Finance Manager at Flyers plc. The company intends to bid for new five-year contracts to operate bus services in either Edinburgh, UK, or Newcastle upon Tyne, UK. Both contracts require the successful bidder to pay a franchise fee to secure the contract and to invest i new fleet of buses. Sufficient funding is available to finance only one of these options.
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a) Calculate the payback for both the Edinburgh and Newcastle upon Tyne
contracts.
b) Critically evaluate the payback technique
c) Advise Flyers plc’s senior executive team on the comments made by Chang
Ying Simmonds and Travis van Riemsdyk. Your advice should include an
explanation of the characteristics of investment appraisal decisions and the
advantages and disadvantages of the
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- The task below has been answered for A, B, C - I need answers only for D Flyers plc operates public transport services in major cities in the United Kingdom(UK). The company uses the accounting rate of return (ARR) and payback methods to support investment decision making. You are a Senior Finance Manager at Flyers plc.The company intends to bid for new five-year contracts to operate bus services in either Edinburgh, UK, or Newcastle upon Tyne, UK. Both contracts require the successful bidder to pay a franchise fee to secure the contract and to invest in a new fleet of buses. Sufficient funding is available to finance only one of these options. Edinburgh Newcastle £000 £000 Franchise fee (year 0 ) 8,700 7,950 New buses (year 0) 4,120 3,890 Scrap Value (year 5) 110 95 Forecast net cash inflows Year 1 3,780 3,500 Year 2 4,150 3,850 Year 3 4,550 4,200 Year 4 5,120 5,150 Year 5 4,900 4,950 Assume that all cash flows occur at the end of the respective…Flyers plc operates public transport services in major cities in the United Kingdom (UK). The company uses the accounting rate of return (ARR) and payback methods to support investment decision making. You are a Senior Finance Manager at Flyers plc.The company intends to bid for new five-year contracts to operate bus services in either Edinburgh, UK, or Newcastle upon Tyne, UK. Both contracts require the successful bidder to pay a franchise fee to secure the contract and to invest in a new fleet of buses. Sufficient funding is available to finance only one of these options. Edinburgh Newcastle £000 £000Franchise fee (year 0) 8,700 7,950New buses (year 0) 4,120 3,890Scrap value (year 5) 110 95Forecast net cash inflowsYear 1 3,780 3,500Year 2 4,150 3,850Year 3 4,550 4,200Year 4 5,120 5,150Year 5 4,900 4,950Page 12 of 14[2044]Assume that all cash flows occur at the end of the respective year.The company’s approach to investment appraisal was discussed at a recent meeting of Flyers plc’s…Flyers plc operates public transport services in major cities in the United Kingdom (UK). The company uses the accounting rate of return (ARR) and payback methods to support investment decision making. You are a Senior Finance Manager at Flyers plc.The company intends to bid for new five-year contracts to operate bus services in either Edinburgh, UK, or Newcastle upon Tyne, UK. Both contracts require the successful bidder to pay a franchise fee to secure the contract and to invest in a new fleet of buses. Sufficient funding is available to finance only one of these options. Edinburgh Newcastle £000 £000Franchise fee (year 0) 8,700 7,950New buses (year 0) 4,120 3,890Scrap value (year 5)…
- Flyers plc operates public transport services in major cities in the United Kingdom(UK). The company uses the accounting rate of return (ARR) and payback methods to support investment decision making. You are a Senior Finance Manager at Flyers plc.The company intends to bid for new five-year contracts to operate bus services in either Edinburgh, UK, or Newcastle upon Tyne, UK. Both contracts require the successful bidder to pay a franchise fee to secure the contract and to invest in a new fleet of buses. Sufficient funding is available to finance only one of these options. Edinburgh Newcastle £000 £000 Franchise fee (year 0 ) 8,700 7,950 New buses (year 0) 4,120 3,890 Scrap Value (year 5) 110 95 Forecast net cash inflows Year 1 3,780 3,500 Year 2 4,150 3,850 Year 3 4,550 4,200 Year 4 5,120 5,150 Year 5 4,900 4,950 Assume that all cash flows occur at the end of the respective year.The company’s approach to investment appraisal was discussed at a…Flyers plc operates public transport services in major cities in the United Kingdom(UK). The company uses the accounting rate of return (ARR) and payback methods to support investment decision making. You are a Senior Finance Manager at Flyers plc.The company intends to bid for new five-year contracts to operate bus services in either Edinburgh, UK, or Newcastle upon Tyne, UK. Both contracts require the successful bidder to pay a franchise fee to secure the contract and to invest in a new fleet of buses. Sufficient funding is available to finance only one of these options. Edinburgh Newcastle £000 £000 Franchise fee (year 0 ) 8,700 7,950 New buses (year 0) 4,120 3,890 Scrap Value (year 5) 110 95 Forecast net cash inflows Year 1 3,780 3,500 Year 2 4,150 3,850 Year 3 4,550 4,200 Year 4 5,120 5,150 Year 5 4,900 4,950 Assume that all cash flows occur at the end of the respective year.The company’s approach to investment appraisal was discussed at a…#15 Carni’s boss stated that after reviewing first quarter earnings, the company decided to invest in only one store in the city. After evaluating the performance of the store, the company will determine if it wants to increase its presence in the area. a) If you were Carni, what method of evaluation would you use to recommend a site for a new video store? b) Explain how you would determine which site to invest in.
- 21.A firm considering the installation of an automatic data processing unit to handle some of its accounting operations. Machines for that purpose may be for P20,000, or may be leased for P8,000 for the 1st year and P1,000 less every year now and then until the end of the 4th year. If money is worth 15%, is it advisable to rent or buy the machine. *In written solution pleaseDante Development Corporation is considering bidding on a contract for a new office building complex. The following figure shows the decision tree prepared by one of Dante’s analysts. At node 1, the company must decide whether to bid on the contract. The cost of preparing the bid is $200,000. The upper branch from node 2 shows that the company has a 0.8 probability of winning the contract if it submits a bid. If the company wins the bid, it will have to pay $2 million to become a partner in the project. Node 3 shows that the company will then consider doing a market research study to forecast demand for the office units prior to beginning construction. The cost of this study is $150,000. Node 4 is a chance node showing the possible outcomes of the market research study.Nodes 5, 6, and 7 are similar in that they are the decision nodes for Dante to either build the office complex or sell the rights in the project to another developer. The decision to build the complex will result in an…MN.51. Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $46,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $50,000. She proceeds with opening the restaurant, and it begins operations on May 1. Determine the amount that Henrietta can deduct in the current year for investigating these two businesses. In your computations, round the per-month amount to the nearest dollar and use rounded amount in subsequent computations. b. The deductible amount of investigation expenses related to opening a restaurant:
- O Δ You work for a construction company that is considering a bid on a project to modernize the power grid in a country that is recovering from an earthquake. The cost to prepare the documentation that is necessary to submit the bid is $50,000. If a bid is submitted, you estimate that the project will be awarded with probability 0.5. The company's profit depends on the political situation prevalent in the country at the time of the project. Based on your experience, you conclude that with probability 0.2, the country would present favorable conditions and that the company would earn $240,000; with probability 0.7, the country would present stable conditions and the company would earn $140,000; and that with probability 0.1, the country would present unstable conditions and the company would lose 560,000. a. Would you recommend that the company bid on the project? b. Before your company bids on the project, what is the maximum amount you would pay for a forecast of the political…The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $2.6 million. The cost of goods sold is estimated to be 40 percent of sales, and corporate overhead would increase by $306,500, not including the cost of either acquiring or leasing office space. The corporation will have to invest $2.6 million in office furniture, office equipment, and other up-front costs associated with opening the new office before considering the costs of owning or leasing the office space. A small office building could be purchased for sole use by the corporation at a total price of $5.8 million, of which $900,000 of the purchase price would represent land value, and $4.9 million would represent building value. The cost of the building would be depreciated over 39 years. The corporation is in a 21 percent tax bracket. An investor is willing to purchase the same building and lease it to the corporation for $645,000 per year for a term of…You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,310,000; rents are estimated at $167,680 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d.…