Please Show All Workings Very Clearly, and Do NOT use handwritten answers! A group of IT students are planning to run a tuition centre and expecting to earn 18% return from the business.Duration of the business is 5 years.They have estimated the expenditures and income as follows,Initial Investment Rs. 2.5 million rupees.Residual value at the end of 5 years is Rs. 800,000.First year sales income is Rs. 2 million. It is expected to increase by Rs. 1 million per year up to 5 years.Payments for tutors are 50% of the annual sales income.First Year Admin Expenses are Rs. 200,000, where these are expected to increase by Rs. 100,000 per year up to 5 years.First Year Promotional Expenditures would be Rs. 400,000, where it is expected to increase by Rs. 100,000 per year up to 5 years.Other expenditures are Rs. 100,000 per year and will remain unchanged year to year.Tax rate 20%. Calculate the net present value (NPV) by showing all cash inflows, cash outflows, net cash flows appropriately, using a table.

Expected rate of return is 18% Duration is 5 Years Initial Investment is Rs 2.5 million. Residual…

Answered: A group of IT students are planning to…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4TIF

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Please Show All Workings Very Clearly, and Do NOT use handwritten answers!

A group of IT students are planning to run a tuition centre and expecting to earn 18% return from the business.

Duration of the business is 5 years.

They have estimated the expenditures and income as follows,

Initial Investment Rs. 2.5 million rupees.
Residual value at the end of 5 years is Rs. 800,000.
First year sales income is Rs. 2 million. It is expected to increase by Rs. 1 million per year up to 5 years.
Payments for tutors are 50% of the annual sales income.
First Year Admin Expenses are Rs. 200,000, where these are expected to increase by Rs. 100,000 per year up to 5 years.
First Year Promotional Expenditures would be Rs. 400,000, where it is expected to increase by Rs. 100,000 per year up to 5 years.
Other expenditures are Rs. 100,000 per year and will remain unchanged year to year.
Tax rate 20%.

Calculate the net present value (NPV) by showing all cash inflows, cash outflows, net cash flows appropriately, using a table.

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