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Idwala Carbonates group of companies located in Port Shepstone in the South Coast (KwaZulu-Natal) is considering which of two mutually exclusive projects to accept, each with a five-year life. These projects are aimed at increasing the production capacity for limestone to boost the supply of this material to Eskom’s Kusile Power Station in Mpumalanga. Project A requires an initial expenditure of R2 300 000 and is forecast to generate annual cash flows before depreciation of R800 000. The equipment purchased at time zero has an estimated residual value after five years of R300 000. Project B costs R660 000 for equipment at the start. This has a residual value of R60 000 after five years. Cash inflows before depreciation of R250 000 per annum are anticipated. The company has a straight-line depreciation policy and a cost of capital of 15 per cent (relevant for projects of this risk class). You can assume that the cash flows are also equal to the profits before depreciation.
Calculate:
1. An accounting rate of return.
2. The net present value.
3. What are the disadvantages of using ARR.
The real risk-free rate is 2.44%. Inflation is expected to be 2.51% this year and 3.24% next year. The maturity risk premium is estimated to be equal to 0.06%(t-1), where t equals the maturity of a bond in years. All treasuries are assumed to have no..
What are the main provisions of the current exposure draft for Not-for-profit entities- on consolidations. Evalute the exposure draft's provisions in light of the conceptual framework (include qualitative characteristics of useful information).
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Its operating profit (EBIT) is expected to be $2.1 million. Its tax rate is 30 percent. Shares are valued $20.00. Capital structure is either short-term financing at 5 percent of equity. There is no long-term debt (Round the final answer to 2 decimal..
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Given a MPT with a starting pool balance of $1,000,000, whose underlying collateral is a group of 10 year FRMs with annual payments, interest rate on the underlying mortgages=10%, servicing fees=0.5%, and prepayment projected to be 10% annually, what..
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