Reference no: EM133079746
Question - Monica is a senior financial manager of Eclipse Ltd. She is conducting a capital budgeting analysis on a new product. She has already authorised an extensive market research on the marketability of the product that cost $15,000, which she paid yesterday.
The new project is expected to generate yearly revenue of $390,000 for 4 years. The related variable costs are expected to be $100,000 p.a. and Monica estimates the relevant fixed costs would be another $30,000 p.a.
The project will require the company to purchase new equipment at a cost of $500,000. The new equipment will be installed in a building which the company already owns but the building is currently left vacant.
The company will depreciate the equipment by the straight-line method to zero salvage value over the 4 years and Monica believes that they can sell the equipment at the end of 4 years for $20,000.
Eclipse Ltd's required payback is 3 years and the required rate of return is 12% p.a. The relevant tax rate is 30% and tax is paid in the year in which earnings are received.
Required -
1. Calculate the incremental cash flows of the new project for each year (Y0 to Y4 inclusive).
2. Calculate the payback period of the project. (Show answer correct to 2 decimal places.)
3. Calculate the net present value (NPV) of the project. (Show answer correct to 2 decimal places.)
4. Calculate the present value index of the project. (Show answer correct to 4 decimal places.)
5. Should Monica accept this project? Why or why not?
|
Are you a millionaire
: What if the payments are forever, a perpetuity? Assume that r = 10%. (Hint: what is the present value of these cash flow streams?)
|
|
Draw a diagram depicting the equilibrium
: Draw a diagram depicting the equilibrium in the Mexican orange market without international trade. Identify and label the equilibrium price, equilibrium quanti
|
|
Identify optimal plant and warehouse location
: Identify optimal plant and warehouse location for a UK manufacturing company: a linear programming model minimising CO2 emissions
|
|
How much donor''s tax should be paid on january
: Donations were made on January 30, 2018 of P500,000.00, March 30, 2018 of P2,000,000.00. How much donor's tax should be paid on January 30, 2018
|
|
Calculate the incremental cash flows of the new project
: Calculate the incremental cash flows of the new project for each year (Y0 to Y4 inclusive)
|
|
What income or loss is reported
: If Fancy decides to use the carry forward provision and not the carry back provision, what income (loss) is reported in 2020
|
|
What was the overall accuracy of the model
: Describe the K-Nearest Neighbors Algorithm and What was the overall accuracy of the model - What was the accuracy for each type of Iris
|
|
What would be the amount of the manufacturing overhead
: If prime costs has a total amount of 785,400, what would be the amount of the manufacturing overhead if it consists 30% of the total manufacturing costs
|
|
Construction of a hydroelectric dam in bakun
: In 1986, the Malaysian Government decided to proceed with the construction of a hydroelectric dam in Bakun, an area in the predominantly forested East Malaysian
|