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60. A company is evaluating the viability of two capital investment projects, project Y and project Z.
Project Y requires an investment of $120,000 in a year 0 in depreciating assest with an expected life of four years and no residual value.The straight-line method of depreciation is used.
Year1 Year2 Year3 Year 4
($’000) ( $’000) ( $’000) ($’000)Incremental sales 140 160 180 200
Contribution 49 56 72 80
Incremental fixed overhead (excluding depreciation) 12 12 12 12The share of general fixed overhead that would be apportioned to project Y would be $36,000 in each year.
Peoject Z is forecast to result in incremental net cash inflows of $95000 in each of the five years of project life. The investment amount in year 0 is uncertain.
The cost of capital is 12% p.a for both projects.
All cash flows take place at year end apart from the initial investment which occurs immediately.
Task 1:(4 Marks )
1. What is the relevant cash flow for year 1 for project Y?
$………………….
2. What is the relevant cash flow for the year 3 for project Y ?
$…………………….Task 2: ( 4 Marks)
1. What investment amount in year 0 would result in an internal rate of return ( IRR) of 18 5 for project Z ?
$………………..2. What investment amount in year 0 would result in a positive NPV of $20,000 when discounted at the cost of capital for project Z?
$………………..Sir, help me to solve this question. I am confused.
1. A company is considering a new project with a life of 15 years. It requires an initial investment of $5,000 payable immediately .In the first two year it will generate a net cash flow of 2,000 per year receivable at the end of each year. After that its net inflows will be $1,000 per year at the end of the next 13 years.
The company’s cost of capital is 12% per year.
Task 1:(6 Marks)
Calculate the following :
1. Non-discounted payback period ( To the nearest year) …………………Years
2. Net present value ( To the nearest $100)$ ……………….
3. Discounted payback period (To the nearest years)…………… YearsTask 2:( 4 Marks)
Which of the following are weakness that apply to the net present value and which apply to non-discounted payback method of investment appraisal ?
NVP Non discounted payback
It may not consider all of a project cash flows
It requires a knowledge of the cost of capital
It does not measure the project effect on shareholders
wealthIt ignores the time value of money
I am confused with this question also?
There is no point in simply typing out full questions and expecting to be provided with a full answer.
You must have answers in the same book in which you found the questions, so ask about whatever it is in the answers that you are not clear about and then I will explain.
I assume that you have watched my free lectures on all of this, because everything needed to be able to answer these questions is covered in the lectures. The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
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