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Question 1 - A firm whose cost of capital is 10% is considering two mutually exclusive projects X and Y, the details of which are:
Cost Cash Inflows
Year
Project X
Project Y
0
Rs. 70,000
1
Rs. 10,000
Rs. 50,000
2
Rs. 20,000
Rs. 40,000
3
Rs. 30,000
4
Rs. 45,000
5
Rs. 60,000
Required - Compute the Net Present Value at 10%, Profitability Index, and Internal Rate of Return of the two projects.
Question 2 - Nick Ltd acquired 100% of the issued capital of Wing Ltd on 1 July 2011 for $270000. The statements of financial position of the companies immediately after the acquisition are provided below. All assets have been reported following fair value.
Statement of Financial Position For the year ended 1 July 2011
Nick Ltd $
Wing Ltd $
Shareholders' equity
Share capital
450,000
180,000
General reserve
45,000
25,000
Retained earnings
140,000
20,000
Total shareholders' equity
635,000
225,000
Assets
Current assets
Cash at Bank
50,000
30,000
Accounts Receivable
10,000
Inventory
100,000
170,000
65,000
Non-current assets
Investment in Wing Ltd
270,000
----
Land
250,000
200,000
Plant & Equipment
80,000
620,000
280,000
Total assets
790,000
345,000
Liabilities
Current liabilities
Accounts Payable
40,000
Interest Payable
15,000
8,000
55,000
18,000
Non-current liabilities
Bank loan
102,000
Total liabilities
155,000
120,000
Net assets
Required -
1. Calculate Goodwill (show workings).
2. Prepare consolidation journal entry at the date of acquisition.
3. Prepare consolidation worksheet.
4. Prepare the consolidated statement of financial position as at 1 July 2011 (immediately after the acquisition).
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