Question 2 Jeanius plc is considering an investment of £10 million in a new trouser production plant. The project business plan is based on the following assumptions: • The project will start on 1st January 2022. The initial investment is assumed to be incurred at the start of the project. • Production will start on 1st January 2024. • Production will be 2 million pairs of trousers each year for the first 8 years of production and then increased to 4 million pairs. Profits will be £0.75 per pair of trousers to be received at the beginning of each calendar year. Profits increase by 90% minh orting in the 2rd voor of production
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- REPLACEMENT CHAIN The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A costs 8.9 million but will provide after-tax inflows of 4.5 million per year for 4 years. If Machine A were replaced, its cost would be 9.8 million due to inflation and its cash inflows would increase to 4.7 million due to production efficiencies. Machine B costs 13.9 million and will provide after-tax inflows of 4.3 million per year for 8 years. If the WACC is 9%, which machine should be acquired? Explain.Question 3 Python Machine Company is considering the acquisition of a large equipment to set up its factory in a backward region for Rs. 1,900,000. The equipment is expected to have an economic useful life of 10 years. The equipment can be financed either with an eight year term loan at 16% interest, repayable in equal instalments of Rs 393,112 per year, or by an equivalent amount of lease rent per year. In both cases, payments are due at the end of the year. The equipment is subject to the straight line method of depreciation. Assuming no salvage value, and 30% corporate tax rate. Which of the financing alternatives should it select?QUESTION 2 Your firm is trying to invest in a Project A for planning horizon of 5 years. The initial investment and initial revenue are RM300, 000 and RM10, 000 respectively. The cost for first year including renovation of building (RM5, 000), IT (RM5, 500) and maintenance (RM9, 000). The annual cost of operation is RM20, 000 for second year while remaining are RM10, 000. The company predicts that the project will generate a stream of earning RM100, 000, RM120, 000, RM130, 000 and RM150, 000 for first 4 years respectively. While the expected revenue of year 5 comes from 3rd party payment (RM70, 000), technology transfer (RM70, 000) and new systems (RM60,000). Develop a gross cash flow and calculate the cash flow after tax of 30%. Estimate the internal rate of return (IRR) after If the Project B has IRR of 35%, decide the best investment and state your
- Question A22 A project initially costs £297,000 and is expected to have a useful life of five years at which point its scrap value will be £32,000. The project is expected to yield operating profits of £94,000 per year over its useful life. What is the accounting rate of return? (2d.p.)LTE ( 2. Rachacl Hudson Ltd is considering the purchase of a crane in its constructior site which will. The equipment costs $380,000. The project is expected to produce after-tax cash flows of 585,00 the first year and increase by $10,000 annually. The after-tax cash flow in the following Sycars. The firm estimated that the salvage value of the equipment is $55,000 in cash at the end of the fourth year. Asume the required return is 10%. What is the project's net present value? Draw a time line and explain.H3. Market Top Investors, Incorporated, is considering the purchase of a $485,000 computer with an economic life of six years. The computer will be fully depreciated over six years using the straight-line method, at which time it will be worth $132,000. The computer will replace two office employees whose combined annual salaries are $98,000. The machine will also immediately lower the firm’s required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 8 percent. Calculate the NPV of this project. Please show proper step by step calculation
- QUESTION 37 Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457 Required: Evaluate the investment Both Payback and Accounting Rate of Return measures support the decision to purchase of a computer-aided manufacturing system, but do not consider the time value of money. The net present value is negative which is favorable. There are other relevant variables that need to be considered such as any changes in operating costs and any non-financial or qualitative factors. Both Payback and Accounting Rate of Return measures support…Question 18 Pharmos Incorporated is a Pharmaceutical Company which is considering investing in a new production line of portable electrocardiogram (ECG) machines for its clients who suffer from cardio vascular diseases. The company has to invest in equipment which cost $2,500,000 and falls within a MARCS depreciation of 5-years, and is expected to have a scrape value of $200,000 at the end of the project. Other than the equipment, the company needs to increase its cash and cash equivalents by $100,000, increase the level of inventory by $30,000, increase accounts receivable by $250,000 and increase account payable by $50,000 at the beginning of the project. Pharmos Incorporated expect the project to have a life of five years. The company would have to pay for transportation and installation of the equipment which has an invoice price of $450,000. The company has already invested $75,000 in Research and Development and therefore expects a positive impact on the demand for the new…Question 2(a) The manufacturing firm Rebo is considering a new capital investment project.The project will last for five years. The anticipated sales revenue from theproject is $3 million in year 1 and $4.2 million in each of years 2 – 5. The cost of materials and labour is 50% of sales revenue and other expenses are $1 million in each year. The project will require working capital investment equal to 20% of the expected sales revenue for each year. This investment must be in place at the start of each year. Working capital will be recovered at the end of the project’s life.The project will require $2.5 million to be spent now on new machinery which will have zero value at the end of the project and will be depreciated each year at 20% of the original cost. The tax rate is 25%. Rebo uses a discount rate of 11% to evaluate its capital investment projects.i. What is the net income in each year?ii. What is the free cash flow in each year and the net present value (NPV)?iii. You discover…
- Question 2 (Investment Decision Rules and Project Cash Flows) Consider a hypothetical economy that has NO tax. ABC Ltd. is considering investing in a 2-year project which is expected to generate the following year-end cash flows: C1 = $110 million, C2 = $115 million. The yearly discount rate for the project is 10%. The initial cost of the project is $200 million. (f) Now suppose that of the $200m initial expenditure, $50m was used for the purchase of a machine that has an estimated economic life of four years. The machine will be fully depreciated (i.e., zero book value at the end of the machine’s economic life) on a straight-line basis and expected to have a resale value of $35m at the end of the project. (i) Explain how this will affect the size of the terminal (end-of-project) cash flows. (ii) How will this affect the NPV and the acceptance/rejection of the project (as compared to part (a))? Show your calculations.Week 4Giant Equipment Ltd. is considering two projects to invest next year. Both projects have the same start-up costs. Project A will produce annual cash flows of $42,000 at the beginning of each year for eight years. Project B will produce cash flows of $48,000 at the end of each year for seven years. Thecompany requires a 12% return.Required:a) Which project should the company select and why? b) Which project should the company select if the interest rate is 14% at the cash flows in Project B is also at the beginning of each year?QUESTION 33 Advanced Products is considering the purchase of a computer-aided manufacturing system that requires an initial investment of $1,750,000 and is expected to provide an increase in net income of $200,000 and average annual cash benefits and savings of $250,000 each year for the next 10 years. Their current cost of capital is 10%. Following are selected factors from tables for 10 years at 10%: FV of $1 FVOA PV of $1 PVOA 2.59374 15.93742 0.38554 6.14457 Required: Compute the present value of the cash inflows/savings $1,536,142.50 $648,435 $963,850 $2,500,000