Reference no: EM131069495
Differentiate sunk cost from opportunity cost and state their relevance in cash flows. (4 Marks) 2) Investing in a bee keeping business is deemed to have the following cash flows over its useful life of 5 years. The abandonment value is also provided in a yearly basis Year Cash Flow Abandonment Value 0 (520,000) 520,000 1 250,000 350,000 2 200,000 240,000 3 150,000 150,000 4 100,000 75,000 5 50,000 0 Required: Determine when to abandon the project assuming a discount rate of 10%. (8 Marks) 3) AA limited is considering to purchase an equipment costing sh. 9,000,000 that is estimated to have a useful life of three years with a residual value of sh. 3,000,000. The company will incur a further investment cost of sh. 1,600,000, modification cost of sh. 600,000 and an installation cost of sh. 800,000. Annual revenue is projected to be sh. 10,000,000 while the overheads associated with the venture will amount to sh. 7,000,000 p.a. Calculate the initial investment outlay and operating cash flow
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