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A medium size company. It is planning a project which would require the acquisition of a new equipment in order to improve its co-ordination activities. The initial investment is £70,000 with a scrap value of £7000 at end of 7 years.
It will generate cash inflows of £22,000 per annum for the first 4 years, £20,000
per annum for the next 2 years and £13000 in the last year.During the 6 year, repairs of £11,000 are expected to be carried out on the
equipment. All cash flows are assumed to arise at the end of the year to which they
relate other than the initial costs.Calculate the Weighted Average Cost of Capital?
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – it has answers and workings!
The information you have provided all relates to setting up the cash flows in order to discount them at the WACC to calculate the NPV.
It is impossible to calculate the WACC (and therefore the discount rate) because none of the necessary information appears in what you have typed.
If you watch my free lectures on the cost of capital you will realise that there is not enough information in the question.
(The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.)
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